UK Accounting for crypto transactions?

[DavidBernhardt]

My business is using a site for certain services where the only payment option is by crypto. We can upload any amount of credit to our account there and then use that, we don’t have to pay separately for every purchase. Obviously first we need to buy the crypto, then transfer that to this site so we get a certain amount of credit. We do these at the same time so there are no drops in the value of the crypto. If the crypto is bought with the director’s own debit card for example, is it possible to simply account for the amount paid into this site as a business expense paid from the director’s loan account and thus ignoring the crypto transaction? As far as I know people usually don’t take into account how did the director pay for a business expense from his/her own pocket (whether it was by credit card, cash, etc.) when they do the accounting for it, only the amount payed. If not, how can we account for this?
Thanks for your help in advance.

 

[DrStrangeLove]

How the director paid for the cryptocurrency isn't relevant. But GAAP's entity concept would require that there be a transaction to show the transfer of ownership of the cryptocurrency from the director to the firm. Generally, the director and the firm are separate entities for GAAP purposes. If the director purchased the cryptocurrency with their own separate money, they own the cryptocurrency, not the firm. It's not the firm's asset until the firm trades the director for it.

How you repay the director for the purchase is also not really important; you can credit cash or the director's loan account, whichever both sides agree to. I'm assuming it isn't some whoppingly large amount of cryptocurrency, and there isn't a very long delay between their purchase and your repayment, correct?

 

[DavidBernhardt]

Thanks for you reply.
The ownership of the cryptocurrency never changed from the director to the firm, its purchase is just a necessary middle step to gain credit in _normal currency_ on this site. The company never gained any cryptocurrency (not from these transactions at least). Maybe this wasn't clear. But I'm guessing that this doesn't matter then, and I can just account for this the same way as if this was just a normal transaction from the director's own pocket, since the way the director handled this payment doesn't matter. Or did i misunderstand something?

 

[DrStrangeLove]

It was clear that the cryptocurrency itself didn't pass hands, but the claim to it, which is the payment credit on the site, did. My point was that the director's payment expended an asset that was the director's, not the firm's, and is effectively a form of credit from the director to the firm. In order to get the expense onto the firm's books and off the director's books, some kind of transaction is necessary.

 

[DavidBernhardt]

Thank you! How exactly do I account for this then? Because I have no idea how to get this transaction into the firm’s book.

 

[DrStrangeLove]

You have two ways to get it there, and they are equivalent in the end.

First way: the director loaned the firm cash to spend on the site. So:

• Director's Books: Receivable from Firm DR/Cash CR.
• Firm's Books: Cash DR/Payable to Director CR.

The firm makes the payment on the site:

• Firm's Books: Stuff DR/Cash CR. (I'm skipping the step that converts the cash into cryptocurrency, since it's not relevant to your problem.)

Second way: The director buys stuff on the site for cash:

• Director's Books: Stuff DR/Cash DR.

The director than gives you the stuff in exchange for your agreement to repay the value of the stuff.

• Director's Books: Receivable from Firm DR/Stuff DR
• Firm's Books: Stuff DR/Payable to Director CR.

In both cases, on a net basis, that firm has a payable to the director, who has a receivable. The firm just needs to pay it back with a transaction like Firm's Books: Payable to Director DR/Something CR. Doesn't matter if the Something is cash, a reduction to a loan due from the director, or Flanian Pobble Beads.

 

[DavidBernhardt]

Thank you. I know this, this is what I asked originally if I could do that. In this case there is no "stuff" that the director gives us, it's just expenses required to complete orders, paid by the director, so I would credit the director's loan account and debit a certain expenses account, right? And then naturally CR Cash and DR director's loan account to pay the loan back.
" I'm skipping the step that converts the cash into cryptocurrency, since it's not relevant to your problem "
Maybe I wasn't clear, sorry, this is exactly what I'm asking about. If I can't ignore this payment step with the crypto when accounting, then how do I account for this exact step? I took it from your earlier words that I can't ignore it, but sorry if I misunderstood you.
Thanks for you help, it is very much appreciated.

 

[DrStrangeLove]

If you're using the account to accumulate cryptocurrency, then just treat it like any other foreign exchange transaction--convert at spot at time of purchase, and mark-to-(spot) market at balance sheet dates. I believe foreign currency transactions are usually taught in advanced accounting, so any reasonably good advanced accounting textbook will show you all the steps. YMMV.

Your reimbursing the director is independent of the cryptocurrency. Your payable to the director would be denominated in whatever your books' functional currency is. See the second method I showed you--replace Stuff with Widgetcoins (or whichever cryptocurrency the site uses).