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Understanding & Accounting for Cryptocurrency Payments

This article addresses the trajectory of the digital asset world and its relation to accounting principles.

Jan 18, 2022

Accepting Cryptocurrency Payments

In 2014, Microsoft began accepting Bitcoin as a form of payment for its online games and other digital content. Since then, many other companies have gravitated towards the idea of accepting cryptocurrency in exchange for goods or services. Some argue that accepting cryptocurrencies strategically differentiates those who accept it from those who do not. This is why some companies—such as Bitpay, Coinbase Commerce, and Taxbit—are solely dedicated to helping businesses adapt to accepting cryptocurrencies as payment.

Square (Form 8-K, 2021): Square and Bitcoin

Square owns a payment service, Cash App, which strives to help more individuals access and understand investing. Cash App allows individuals to easily send and receive Bitcoin, acting as a Venmo for the digital asset world.

In a 2021 8-K, Square said the following:

Customors have brought more money into Cash App over time. As we have offered individuals the ability to instantly send bitcoin free, unlock unique Boosts, direct-deposit their paychecks, and more, customres have continued to find increased utility on the platform.

August 2021

Ambiguity in Accounting for Cryptocurrency

Digital assets, such as cryptocurrency, do not fit neatly into the guidance under Generally Accepted Accounting Principles (GAAP). Many individuals in the business world think of these assets as financial instruments, similar to stocks, because of the active market data. But because these digital assets have no value tied to physical assets or to an operating company and digital assets are not backed by a regulatory body, they are not currently accounted for in the same way as investment securities such as stocks and bonds. According to the Financial Accounting Standards Board (FASB), digital assets like cryptocurrency do not meet the qualifications of a financial asset. The current generally accepted principle is to account for cryptocurrency as an indefinite-lived intangible asset. Some have pointed to the AICPA Practice Guide as an authoritative source, and others to Big 4 Accounting firm guides.

The disconnect between what some feel the assets are—financial instruments—and how they are treated—intangible assets—has led many professionals to request that the FASB address this issue. Recently, an accountant for one of the Big 4 accounting firms wrote on LinkedIn, “Hopefully [The FASB] gives some clarity soon because it’s starting to become much more impactful for several companies. And I also want to have this settled so I can move on with my life.”

The FASB has yet to provide clear guidance specifically targeted at the accounting for cryptocurrency. Although it is unclear what they will ultimately decide regarding accounting for digital assets, if the use of cryptocurrency continues to increase, the FASB will eventually have to make a decision.

Despite the lack of clear guidance, companies are still interested in accepting digital currency as a form of payment. The decision to accept crypto payments necessitates that companies understand correct accounting principles throughout the following stages of the digital asset’s life cycle:

  1. receipt of cryptocurrency,
  2. changes in value of cryptocurrency, and
  3. conversion/sale of cryptocurrency.

Accounting for the Receipt of Cryptocurrency

Although the accounting for cryptocurrency transactions sounds daunting, it is just like any other transaction that accountants are used to recording. Upon acceptance of cryptocurrency in exchange for a good, one increases the cryptocurrency asset account with the accompanying recorded sale account, which is consistent with traditional forms of payment (while considering ASC 606 for revenue recognition).

Accounting for Cryptocurrency Value Changes

The professional consensus is that cryptocurrencies are indefinite-lived intangible assets. Once the currency belongs to the business, the business should account for it at cost less impairment (following the guidance in ASC 350). Because digital assets are not accounted for as financial instruments, but rather as an indefinite-lived intangible asset, the cryptocurrency’s value increases are generally ignored, and value decreases are reported as a subtraction from net income.

Tesla (Form 10-Q, 2021): Tesla's Treatment of Bitcoin

Tesla is an automobile manufacturer that produces electric vehicles. In its recent quarterly report, Tesla discusses its accounting policies surrounding Bitcoin as described above:

We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. We have ownership of and control over our bitcoin and we may use third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition.

March 2021.

Increases in Value

Under US GAAP, intangible assets cannot be “written up.” Once the intangible asset is on a company’s books, the carrying value of the asset will never be increased above its initially recorded value. From the receiving company’s perspective, it is absolutely possible that the intangible asset increases in value, but the GAAP accounting books will not reflect any increases. This is the accounting treatment accorded most assets: inventory, land, buildings, and intangible assets. A prominent exception is found in the accounting for investment securities: the recorded amounts of those securities are increased when they increase in value.

Impairment Test

Before determining whether to decrease the value of the recorded cryptocurrency, companies must perform an impairment test. Indefinite-lived intangibles “shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired” (ASC 350-30-35-18).

Although the impairment test can be complicated for some intangibles (such as media licenses or patents), it is relatively easy for cryptocurrency because most cryptos are traded on active markets. If the fair value (quoted from an active market) is less than what shows on the company’s books, the cryptocurrency must be “impaired” or written down. Again, the impaired digital asset can only have its book value decreased by impairment. The recorded amount of the asset may never increase in value even if the fair value is higher than the book value. An important thing to keep in mind is that the cryptocurrency should be written down to the lowest value in the reporting period. By extension, this means that the carrying value of the cryptocurrency will always be the lowest recorded fair value since the receipt of the digital asset. 

Decreases in Value

Like other intangible assets, cryptocurrency book values are decreased through an impairment loss account and the intangible asset account is decreased to reflect its current fair value. The impairment loss runs through the income statement, and the loss ultimately decreases net income. 

Tesla (Form 10-Q, 2021): Tesla's Treatment of Bitcoin

We determine the fair value of our bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is its principal market for bitcoin (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest market price of one bitcoin quoted on the active exchange since acquiring the bitcoin. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.

Impairment losses are recognized within Restructuring and other in the consolidated statements of operations in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale(s), at which point they are presented net of any impairment losses for the same digital assets held within Restructuring and other. In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

March 2021

Accounting for Cryptocurrency Exchanges

Exchanging and selling cryptocurrencies is similar to exchanging and selling any other asset. After receiving cryptocurrency as a form of payment, companies may want to sell the digital assets for cash or exchange the digital assets for another asset. When the company does so, it is subject to both gains and losses running through the income statement. For example, if the value of the cryptocurrency has increased from the time it was acquired to when it is sold, the company will increase its cash account for the amount received, fully eliminate the intangible cryptocurrency asset account, and record a gain on the sale for the difference in cash and the cryptocurrency account. Selling digital assets is the only way that increases in intrinsic value can be recognized in companies’ earnings.

If the value of the cryptocurrency has decreased from the time it was acquired to when it is sold, the company will increase its cash account for the amount received, fully eliminate the intangible cryptocurrency asset account, and record a loss on the sale for the difference in cash and the cryptocurrency account. These cryptocurrency exchanges are straightforward and are just like how companies treat exchanges of other assets.

Cons to Accepting Cryptocurrency Payments

Cryptocurrency, however, has its own risks that companies must consider before accepting cryptocurrencies as forms of payment. As mentioned, cryptos tend to be extremely volatile in nature. Accepting Bitcoin, or other cryptocurrencies, may not be the right option for many businesses because some customer bases have never even heard of Bitcoin or would not know how to pay with cryptocurrency. Additionally, companies that have frequent cash expenses may not benefit from the constant need to convert cryptocurrency into cash to pay its vendors, employees, or debt obligations. The strategy of Microsoft to accept cryptocurrency may make sense simply because it is sitting on hundreds of billions of dollars in cash and investment securities to begin with.

Lastly, the tax complexities surrounding cryptocurrencies are not to be overlooked. The IRS decided that cryptocurrencies are to be taxed similar to investment securities. This means that with every sale of appreciated Bitcoin, Ethereum, or XRP—to name a few—capital gains taxes will be owed. This can quickly create additional, unnecessary costs for businesses.  

Companies weighing the pros and cons of accepting cryptocurrency as payment should do so with these, and more, considerations in mind. The best time to start accepting digital assets as payments is whenever the business is ready to accept the challenges that come along with accepting cryptocurrency.


This article has discussed the pros and cons of accepting cryptocurrency, the accounting treatment for accepting cryptocurrency, and some examples of companies using cryptocurrency today. Remember these helpful tips to account for cryptocurrency transactions:

  • receive the digital asset like you would any other form of payment, by recording the cryptocurrency as an asset and recognizing revenue under ASC 606 guidance;
  • account for the digital currency like an intangible asset that can be impaired below its original value, but not written up;
  • immediately recognize any gains or losses when exchanging the cryptocurrency for cash or another asset. 

Embracing the use of digital assets comes with plenty of rewards for those brave enough to shoulder the risks and burdens of accepting cryptocurrencies as a form of payment. 

Resources Consulted