Accounting & Tax, Crypto Tax

Crypto Bookkeeping Best Practices: What You Need to Know

cryptocurrency bookkeeping best practices

Ensuring your business is executing an efficient and effective crypto bookkeeping strategy can rapidly become complicated. Here’s what you need to know about Australian crypto bookkeeping.

Here is what you need to know about crypto bookkeeping best practices. Cryptocurrencies and digital assets are, by design, highly transparent. Major blockchain networks such as Bitcoin and Ethereum make all transactions publicly visible, traceable, and independently verifiable. Transacting with cryptocurrency, however, can rapidly create bookkeeping and accounting problems for cryptocurrency businesses.

Australian businesses that focus on cryptocurrency or businesses that integrate cryptocurrency transactions in their value chain often find it difficult to perform basic business operations such as opening bank accounts, working with knowledgeable accountants, or operating in a certifiably compliant manner.

Why is Cryptocurrency Bookkeeping so Complicated?

Businesses that deal with cryptocurrencies such as exchanges, funds, blockchain enterprises, brokers, or retail businesses that transact with crypto often manage a variety of different wallets or exchange accounts.

Many of these wallets and platforms serve different purposes — an online business in Australia that accepts cryptocurrency, for example, may have wallets and accounts with cryptocurrency payment processors as well as accounts on one or more exchanges. Similarly, a blockchain enterprise may have trading accounts on a variety of different exchanges or OTC desks.

The different platforms used by cryptocurrency businesses or traders all deliver transaction history in different formats. Reporting crypto trading activity for tax purposes, for example, involves collecting trading data from multiple disparate exchanges and accounting for them in a compliant manner.

The process of obtaining, consolidating, assigning value to, and classifying all relevant data points across multiple assets at different times and prices can rapidly become a large-scale problem for businesses.

Bookkeeping for Crypto Businesses

Accounting and bookkeeping represent some of the most difficult challenges faced by cryptocurrency businesses in Australia. The complex nature of crypto bookkeeping forces many businesses to lower the priority of bookkeeping tasks in day-to-day trade, which can create significant problems later — inevitably leading to significant accounting costs.

Managing and tracking different digital assets, working with reliable and knowledgeable accountants, opening bank accounts, and meeting compliance requirements can be an extremely difficult process for Australian crypto businesses.

The primary obstacle faced by Australian businesses seeking to execute a tax-effective crypto bookkeeping best practices strategy is the treatment of cryptocurrency. Most financial reporting guidelines and accounting are designed only for fiat currency based businesses, and don’t translate efficiently to the constantly-shifting regulatory governance of digital assets.

Crypto Bookkeeping Best Practices

Understanding and complying with the regulatory treatment of cryptocurrencies is critical to the success of any Australian business that transacts in crypto. Defining exactly how to execute a crypto bookkeeping strategy, however, is complicated.

To date, there is no benchmark process for crypto bookkeeping — the International Financial Reporting Standards (IFRS) don’t provide a single bookkeeping framework, forcing businesses to approach crypto bookkeeping on a case-by-case basis.

Track All Expenses and Transactions

The most effective approach to efficient cryptocurrency bookkeeping is to keep track of every single cryptocurrency related transaction or expense. This process, while time consuming, can save a significant amount of time when reporting. There are now many different tools that can be used to streamline or automate this data collection process — several third-party tools now integrate into the Xero cloud accounting suite, for example.

It’s also important to document all crypto related invoices through accurate invoice management tools. Automation software can integrate directly with your existing accounting software, further minimizing time-consuming manual entry.

Australian businesses that transact in cryptocurrency should track both fiat and cryptocurrency transactions, then create consolidated reports that cover both. A business that manages multiple wallets and exchange accounts, for example, must collect all transaction, base rate, and price data, then consolidate this data by converting values to fiat either manually or with crypto reporting software.

Remain Compliant

The rapidly changing cryptocurrency ecosystem is subject to close scrutiny by the Australian Government. The regulatory framework that governs cryptocurrency reporting in Australia can change rapidly — it’s critical to stay up to date on the latest regulatory changes in order to remain compliant.

Take Advantage of Bookkeeping Tools

There are now many different tools that integrate with cloud-based accounting platforms such as Xero to streamline the crypto bookkeeping process. While it’s possible to manually enter data when reporting crypto transactions, the scale of many Australian crypto businesses makes this task nearly impossible.

Cryptocurrency reporting software that integrates with cloud accounting tools can significantly reduce the amount of time it takes to collect, classify, and input data manually, as well as eliminate the potential of user error.

Crypto Bookkeeping Checklist

    An efficient crypto bookkeeping strategy for any Australian business that transacts in cryptocurrency should cover the following tasks:

  • Record and track every single crypto related expense, cost, and transaction
  • Convert all crypto transactions into fiat currency
  • Consolidate both fiat currency and cryptocurrency across all exchange accounts and wallets
  • Consistently monitor and assess asset performance, cryptocurrency wallet balances, and daily activity
  • Categorize all crypto transactions into operational costs, expenses, revenue, or other relevant transaction types
  • Consistently reconcile wallet balances and bank accounts on a regular basis
  • Regularly update critical financial reports such as P&L statements, balance sheets, and cash flow statements
  • Maintain an awareness of regulatory changes

Key Takeaways

Cryptocurrency bookkeeping is a critical process, but can rapidly become time consuming. It’s best to engage the services of a professional accountant or financial advisory firm to ensure your books remain accurate, efficient, and regulatory compliant.

Australian businesses transacting with cryptocurrency should develop an understanding of the fundamentals of cryptocurrency bookkeeping in order to ensure correct accounting practices are followed within their business from launch. While tracking and management software can reduce the manual entry workload associated with crypto bookkeeping, it’s important to pay close attention to the financial health of your business.

Cryptocurrency bookkeeping can get complicated. But crypto bookkeeping best practices can help. If your business currently transacts in cryptocurrency and you’re not sure about your tax or reporting obligations, reach out to Fullstack for comprehensive guidance today. Also check out these articles:

Cryptocurrency Accountant – Why You Need One

Cryptocurrency Tax: Avoid 5 Most Common Mistakes

Crypto Trading as a Business 101

Crypto Tax for Holders, Traders and Hobbyists – The Basics

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