Updated: 15 hours ago
Cryptocurrency is a generally recent notion for most people and therefore we will only describe briefly the basics you need to know if you are interested in engaging with it professionally. We will provide a general description of what BITCOIN is and how to manage it in terms of accounting when you use it to make purchases and transactions.
To put it simply, BITTCOIN is a type of digital non-physical currency which is not issued by any acknowledged institution (such as a bank) and is not regulated by any public authority or bank.
To actually make money from BITCOIN, you would need to either become a “miner” by finding and recording solutions to complex issues of the current blockchain system or simply earn from the differences in values when selling and buying BITCOIN.
Accounting management is easy in the case of miner income and it is easy to record it as business income. It is however more complex to record income as element of transaction, such as payment for services. The reason is because the relevant transactions system is recent and detailed information and guidance to manage your accounts is not yet clear.
Briefly put, there are two accepted accounting managing systems for cryptocurrency based on UK GAAP (Generally Accepted Accounting Practice in the UK): to record it as inventories (for example, when the cryptocurrencies are considered as goods) and to record it as intangible asset where the recording system can be based either on cost or revaluation of intangible asset.
Which method is the most appropriate for you in terms of accounting should be discussed in detail with your tax consultant because it is not only a matter of choice but also a matter of restrictions of what you are eligible for, either as a natural person or a company.
Cryptocurrency cannot be considered as normal currency because, under FRS 102 (Financial Reporting Standard for the UK), cash and cash equivalents are defined as:
Cash on hand and demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
Cryptocurrencies fall short of this definition under UK GAAP because:
They are not legal tender backed by any government or state
They are highly volatile where valuations are concerned
They have low liquidity into fiat currency
A relatively small number of outlets accept them
In any case, before you embark on such investments or business transaction plans, we recommend that you consult your accountant or tax consultant. You can also arrange an online consultation with us and we will be happy to provide an appropriate guidance.
Translated / Edited: Apostolia Nestoratou
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