With the rapid growth of cryptocurrency, more and more businesses need to know how to account for crypto transactions.
Even major fiat players are entering the field. Cash App (a subsidiary of Square, similar to Venmo) earned more than $1.63 billion in bitcoin revenue in Q3 2020. This is an explosion of more than 1,000% over the same period last year.
Businesses and individuals need to know how to track crypto transactions to keep their books in tip top shape.
You might think you'll be able to easily manage my crypto transactions in QuickBooks or Xero. Or at the very least, from a spreadsheet. But this sort of thinking can create headaches down the road. You'll quickly realize that there are many features you need that traditional accounting tools simply don’t offer yet.
How would you accurately pin down the spot price? What about being able to properly classify your transactions? Or automating your crypto invoices?
With so many nuances to cryptocurrency transactions, it's important to use software that easily automates and tracks these transactions. Your businesses needs an all-encompassing solution for the entire lifecycle—from CRM, to exchange, to accounting system.
That's why you need crypto accounting software.
What is Crypto Accounting Software?
Crypto accounting software automates the transactions and invoices for an individual or company that pays with cryptocurrency, accepts crypto as payment, or trades crypto themselves.
For the typical business leader, keeping track of past crypto transactions is tough to remember. Whether you’re processing a few crypto transactions per month or thousands of transactions, you don’t want to commit the details to memory. And spreadsheets can quickly get messy and out of hand.
That’s why using a crypto accounting software helps you keep tabs on your crypto wallets and will give you the correct time stamps, amounts, and addresses. With the intuitive automation, you can easily sync addresses to your contact book, which will save you time and prevent any future mistakes.
The Most Essential Features of Crypto Accounting Software
When you are looking into which crypto accounting software to use, it’s important to ensure that you choose a company with the most valuable features to manage your business. Below, we detail which features are absolutely necessary for your crypto accounting needs.
Automatic Spot Price Calculation 📈
The spot price is the exchange rate between the cryptocurrency and your fiat currency at the time the transaction occurred. Many people calculate spot prices manually.
However, calculating spot pricing by hand is a tedious and potentially error-prone process. When it comes to your accounting, you don’t want to mess around.
That’s where crypto accounting software comes in handy. Spot prices should always be calculated using a consistent method — the same source, same method every time which is part of the IRS guidance for virtual currency taxes.
If you’re interested in which countries don’t require reporting your crypto transactions, check out this list of the 8 countries that don’t tax your Bitcoin gains.
Transaction Import and Export 📦
Crypto transactions can come from many different places, including exchanges like Coinbase or Binance, and wallets like Metamask or Ledger.
Many tools offer the ability to import new transactions when they occur and connect directly to wallets / exchanges automatically.
The simplest way to track your crypto transactions is to export the transaction data from exchanges or block explorers into a CSV format and upload it to a crypto accounting software. Any software should be able to support a variety of CSV input formats to give you the flexibility to include transactions from all your wallets and exchanges.
Lastly, it’s important to be able to export transaction data into CSV format from the accounting tool so that it can be further manipulated if needed. Any export should include additional information like spot prices, counterparties, and descriptions.
Consolidated View of Transactions 🔭
If you’re an accountant, you’re probably familiar with Xero or QuickBooks and how they consolidate all of your business activity into financial metrics. This has not always been the case with tracking your crypto transactions.
Before the power of crypto accounting software, it was difficult to see all of your outgoing and incoming transactions in one place. They might be scattered across many different wallets, exchanges, or within these various organizations.
For example, in Metamask, you can only view a few of your outgoing transactions on the screen, and you can never see incoming transactions. In Etherscan, you’re able to see more transactions at one time, but they are scattered across different categories (e.g. ERC 720 or internal transactions).
With crypto accounting software, you can view the entire list of your business transactions - whether it’s from Etherscan, MetaMask, Coinbase, or anything in between. Anything that can be imported such as business wallets or business accounts, the software should be able to show you one consolidated view of it all.
Live View of Your Account Balances ⚖️
With crypto accounting software, you have the ability to view your entire asset portfolio.
There’s no fragmentation or need to dig for a particular asset class. It’s all there for you once you’ve uploaded all of your wallets and accounts. For Ethereum transactions, this is of extreme importance because Ethereum has so many different types of asset classes.
Proper Classification of Transactions 📖
Pop quiz: can you describe the difference between an exchange, trade, and withdrawal? Depending on the exchange, they could all have different meanings. There is no standardization in terminology between exchanges, which can make it difficult to ensure that you are properly classifying each transaction.
Bitcoin wallets present unique challenges due to the UTXO structure where a single transaction can have multiple outputs. And Ethereum can be even more complex, due to internal transactions and smart contract transactions where there may be multiple inputs and outputs. Properly classifying these transactions takes serious work.
A good crypto accounting system will intelligently standardize transaction data, taking into account the source of the data and how that source labels and categorizes data. This is extremely difficult to do by hand, but is all done effortless with the right software.
Transfer Detection Between Wallets 👛
When you buy crypto on Coinbase or any exchange and move it to a cold storage wallet like the Ledger Nano, that’s simply a transfer between two wallets that you own. But when you look at the transaction data on-chain, it can look like one outgoing transaction and another incoming transaction. It’s important to properly classify transfers as such when they do occur. Why? Because transfers are not considered a taxable event. Crypto accounting software should make this process as simple as possible, so you can be sure not to pay any more taxes than necessary.
If the software doesn't offer transfer support, you could be paying more than you should be. Accepting and classifying transfers should be a part of any software for crypto accounting.
Mapping Wallet Addresses to Contacts 📒
It sounds simple and intuitive. Linking a wallet address to a specific contact (like a customer, vendor, or employee) should be second nature. But for many people who transact with crypto, this has never been the case. Until now.
With crypto accounting software, you can connect any specific wallet addresses to a contact name. That means whenever you transact with that address again, it will automatically populate on your ledger.
Accounts Receivables & Payables 🏦
No accounting solution would be complete without the ability to track incoming and outgoing payments. An ideal crypto accounting solution should also provide a way to send invoices to customers, record bills from vendors, and link payment transactions to the invoice or bill.
With an effective crypto accounting software, you are able to automate your invoices to clients who are paying with crypto. This limits the hassle of manually invoicing them every month. You are also able t0 track all of your bills and accounts payables so that it’s not scattered across different accounts.
Accounts receivable and payable support gives businesses the tools to record the proper data that makes business accounting possible.
QuickBooks and Xero Integration 🔄
As mentioned earlier, many accountants use traditional accounting software like QuickBooks or Xero. They might be reluctant to make the switch to accepting cryptocurrencies at first. That’s because they don’t know how to account for it in their bookkeeping systems. It’s essential for businesses to be able to run standard accounting reports like Profit & Loss to get a single unified view of the financial health of the company. Without a way to easily include crypto financial data, a business can only get a partial view of their overall finances.
How would this work, if systems like QuickBooks and Xero don’t support crypto today? The most effective way is to record an entry in the accounting system for each crypto transaction, using the fiat exchange rate (AKA spot price) as the amount to debit or credit.
The best crypto accounting software tools make it painless to connect your accounting system and sync transaction data to the appropriate accounts in your Chart of Accounts.
If the software has a QuickBooks or Xero integration, it’s hard to argue that it’s any more difficult. Simply sync your QB or Xero accounts and save yourself a lot of headaches in the future.
The Bottom Line
We understand that crypto accounting software isn’t exciting. Tracking your crypto transactions is the least fun part of making crypto payments or getting paid in crypto. You would rather spend the time on your business or virtually anything else.
That’s why Gilded is here. We live and breathe crypto accounting. It’s in our blood. We want the crypto accounting system you use to be as valuable and intuitive as possible.
The features listed above are essential for any business who is looking for a way to manage their crypto transactions. If you want to use a software that incorporates all of these features, look no further than Gilded.
What other features would you want to see us offer in the future? We’d love to talk with you and see how we might be able to customize a solution for you.
If you’re interested in learning more, request a demo with a Gilded expert to see how we can help automate your crypto accounting experience.
Gilded empowers businesses to transact globally, using blockchain to unlock more efficient business operations. Our seamless invoicing, payment, and accounting software helps businesses get paid faster and more transparently, with dramatically lower fees.
Founded in 2018, Gilded is backed by Techstars, the Association of International Certified Public Accountants (AICPA), and CPA.com.
Get started with Gilded for free at https://gilded.finance.