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ACCOUNTING FOR CRYPTOCURRENCIES 

ACCOUNTING FOR CRYPTOCURRENCIES 

As the popularity of cryptocurrencies continues to grow, it is essential to understand the accounting process involved for these digital assets. Cryptocurrencies like Bitcoin and Ethereum are decentralized and operate on a blockchain network, which makes it challenging for traditional accounting practices to keep up. However, with the increasing interest and use of cryptocurrencies, established accounting procedures are beginning to be applied to these digital assets.

Here are the steps in the accounting process involved for cryptocurrencies:

1. Tracking transactions:

 The first step in accounting for cryptocurrencies is to track all transactions. This can be done through an online accounting system where every transaction is recorded, along with the date, amount, and purpose of the transaction. It is important to ensure that all transactions are accurately recorded, as these records will be used to prepare financial statements.

2. Determining fair market value: Cryptocurrencies are highly volatile, and their value changes frequently. Therefore, it is essential to determine the fair market value of each cryptocurrency at the time of the transaction. This can be done by referring to the current market price of the cryptocurrency on a reputable cryptocurrency exchange.

3. Realization of gains and losses:

When selling or exchanging cryptocurrencies, it is essential to recognize any gains or losses. If the value of the cryptocurrency has increased since it was acquired, the difference between the acquisition cost and the sale price is recognized as a gain. Conversely, if the value has decreased, the difference is recognized as a loss.

4. Keeping track of cost basis:

It is also important to keep track of the cost basis of each cryptocurrency. This includes the amount paid to acquire the cryptocurrency, any transaction fees or charges, and the fair market value of the cryptocurrency at the time of purchase.

5. Preparing financial statements:

Once all transactions have been recorded, gains and losses have been realized, and cost basis has been determined, financial statements can be prepared. These statements include the balance sheet, income statement, and cash flow statement.

In conclusion, proper accounting of cryptocurrencies is essential in order to accurately track and report financial information. While it may seem complex, the accounting process is similar to that of traditional assets, with the added challenge of tracking the highly volatile value of cryptocurrencies. By following established accounting procedures, businesses and individuals can ensure that they are correctly accounting for and reporting their cryptocurrency holdings.

The above article is provided only for information purposes. It should not be consider as a professional advice. We recommend you to ask for a professional advice before acting on any information provided.  Should you require a professional advice please contact us at info@elaaccounting.com or call us at (+357 99 832578).

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