The increasing adoption of cryptocurrency and its use by several companies is not only changing the way transactions work but also bookkeeping and accounting. Given the volatile cryptocurrency market, several questions arise. For instance, how do you account for cryptocurrency in your financial statements? Unquestionably, the increasing adoption will completely disrupt the landscape of the accounting industry, driving it to devise methods for accounting cryptocurrency in the balance sheet.

Fortunately, the conversation has already begun and although there is no definite clarity, the accounting field has more or less an idea of how to go about it. Let’s look at it more closely.

How To Account for Cryptocurrencies in Accounting, Calculating Values, And More?

Bitcoin may be tough to understand from an accounting standpoint. It may be challenging when assessing the value of your bitcoin holdings. How can you explain something that doesn’t seem to have a physical shape or a set value?

One of the first stages is developing a tracking system for your bitcoin. Making a spreadsheet with the date, currency type, and expenditure amount might be all that is required. You should also keep track of the currency’s value at the time of purchase. This data is accessible on many websites that track bitcoin prices.

Once you’ve established an exemplary method for handling your bitcoin, you must determine how you’ll value it. One approach is to use the currency’s average price over time. You may, for example, use the currency’s average price during the preceding month or year.

The Importance of Coin Market Capitalization in Crypto Accounting

Furthermore, once your bitcoin has a monetary worth, it must be recorded in your records.

The need for exact and up-to-date accounting systems rises and changes in tandem with the bitcoin industry. One area that has seen significant growth in recent years is the use of market capitalization to provide insight into the value of various assets, including cryptocurrencies.

In traditional markets, assets are often assessed using various methods, such as the price-to-earnings ratio, book value, or sales price. These tactics, however, may be challenging to apply in the incredibly volatile and usually unexpected world of cryptocurrency. It is when the market coin market cap enters the picture.

Market capitalization, or “market cap,” is a simple but effective technique for measuring a cryptocurrency’s value. It is calculated by multiplying an asset’s current price by the total number of units in circulation. This figure shows the total value of all outstanding units of a particular cryptocurrency.

While not a perfect number, market capitalization is a valuable tool in crypto accounting and may be used to provide a more accurate representation of an asset’s value.

Auditor Implications of Blockchain

External auditing may leverage blockchain technology. If part or all transactions supporting a company’s financial accounting status are accessible on blockchains, verifying that status becomes less critical. The way audits are carried out would significantly change due to this concept.

Blockchain technology may help with the transactional level claims required in an audit when combined with the right data analytics, freeing the auditor’s knowledge to focus on higher-level issues.

For instance, auditing requires confirming who and how much was exchanged during a transaction and how it is recorded and classified. Is the cash outflow from a transaction caused by the cost of sales or expenses, by paying a creditor, or by creating an asset?

The auditor and accountants will have more time to focus on these concerns with blockchain since these crucial variables often need a context that the public lacks and knowledge of the organization.

Future-Focused Skills

The areas of general accounting dealing with transactional certainty and the transfer of property rights will change due to blockchain technology and intelligent contract technologies.

Transactions may be accounted for and investigated more carefully with the removal of reconciliation and dispute resolution, as well as an improvement in trust in rights and obligations. Using blockchain and other cutting-edge technologies like data analytics or machine learning, many current bookkeeping and accounting department procedures might be streamlined, boosting the effectiveness and value of the accounting function.

The spectrum of skills represented in general accounting will change due to those mentioned above. Reconciliations and provenance assurance are two chores that will be reduced or eliminated while technology, consultancy, and other value-added accounting services will grow.

The auditor’s focus will change to audit a company with significant blockchain-based transactions properly. Using other sources to verify blockchain transactions’ authenticity or existence is unnecessary. However, financial statement reporting, and value selection remain essential. In the long term, more papers may be moved onto blockchains, allowing auditors and regulators who have access to them to analyze transactions in real time while knowing exactly where they came from.

Bottom Line

Bookkeeping and accounting statements convey management assertions, including estimates challenging to quantify or calculate in a blockchain. There are many unanswered questions about how blockchain will change the audit and assurance industry, most notably how rapidly it will do so.

Additionally, an independent audit of financial accounts fosters trust, which is crucial for the system of capital markets to function effectively. Any decline in this trust might harm an organization’s stock or cryptocurrency prices, shareholder value, and reputation, which could lead to fines, penalties, or asset forfeiture.

We hope that after this article, you are aware of the potential changes that cryptocurrency may bring to the accounting world, consequently changing some bookkeeping rules and necessitating accountants to stay ahead of the curve.

A knowledge accounting firm, such as GJM & Co., can help you not only understand the nitty-gritty of cryptocurrency and its impact on accounting but also take care of all your related accounting needs, including income tax return filing, financial reporting, and more, to get you a clear view of where your money is.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in