Accounting for crypto assets are tokenized credit or debit records (IOU/UOM), just like any other accounting system that uses accounting software.
What Is An Accounting Token?
IOU means “I owe you” and relates to an unofficial document acknowledging a debt owed by one party to another. The debt often includes a monetary value, but it may also be associated with other things, such as physical objects or real estate.
Unlike bonds and promissory notes, IOUs are not recognized legal negotiable instruments due to their informal nature. This implies that the person in debt has no legal responsibility to pay the loan just because they drafted and signed an IOU.
IOUs may be as essential as a piece of paper or even a verbal agreement between members of the same family. In certain instances, companies may also use IOUs to record informally how much they owe, for example, to another firm or their workers.
The acronym UOM refers to an informal document admitting a debt owed by one party to another. The debt is often connected with a monetary value. Still, it may also be related to tangible items or real estate.
If you think of blockchain as a “distributed ledger,” token accounting makes perfect sense. They are an alternative to fiat that may assist companies in maintaining their compliance. However, stablecoins are a nightmare for regulators because they work like cash and can be used anywhere or anonymously. Consequently, many countries regulate the use of stablecoins like that of the financial instruments they reflect.
Accounting tokens are tokenized credit or debit entries (IOU/UOM) and are no different from accounting systems that use spreadsheets. They are only used to track how much money the person holding the token owes. It is not backed by FIAT money like stablecoins are, so it can’t be considered a financial product. This solution works well when only a few people are involved in the settlement. If the number of people is small enough, the whole process can be settled on the blockchain using the token’s smart contract. These accounting tokens don’t have to be just money. They can also be coupons for goods or services worth the same amount as the accounted value. In practice, they work the same as coupons.
Are Accounting Tokens Safe?
Accounting tokens and the process of token accounting are very safe and legal because of how blockchain technology works. Businesses can limit who can hold tokens by using a KYC/AML process, adding paperwork, and maintaining the whole process open on a public blockchain. After all, tokens are just credit/debit records on a distributed ledger.
Accounting Tokens as Coupons
Besides that, cryptocurrency accounting tokens are like coupons because they do not necessarily represent a currency but may represent commodities or services. In contrast to conventional coupons, these account tokens are redeemable for an amount equivalent to the monetary worth of the offered product or service. This is why they find widespread use in crypto, allowing users to interact with their favorite services or platform, and getting rewarded with redeemable coupons.
How to Manage Accounting Crypto
To manage token accounting effectively, accountants must select a specific valuation strategy and then stick to it. An updated software should be used as outdated software require manual entry of data which increases the chances of mistake. The values of crypto must be recorded at the time of receiving as well as at the time of spending to calculate gains and losses more accurately.
Best Crypto Accounting Software
To manage token accounting effectively, accountants must select a specific valuation strategy and. There are dozens of cryptocurrency accounting software available in the market but we have shortlisted the best for you.
Koinly
Advantages: Koinly is a top-class cryptocurrency accounting software than can manage up to 10k transactions conveniently. It is affordable for individual users as you can use it for one year for only $49 (limited transaction).
Disadvantages: The free version doesn’t permit to the export of tax reports.
CoinLedger
Advantages: It allows the creation of IRS (Internal Revenue Service) Forms conveniently and it can be integrated with more than 100 exchanges and wallets. CoinLedger supports blockchain and non-fungible token (NFT) transactions as well.
Disadvantages: The free version has more restrictions.
CryptoTaxCalculator
Advantages: CryptoTaxCalculator makes accounting for crypto assets more accurate and less time-consuming for accountants. This software has even eliminated the need to hire an accountant as you can do it on your own using this software.
Disadvantages: it is not available in numerous countries
