Generally Accepted Accounting Principles ( Gaap ) And Financial Accounting Standards Board

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Generally Accepted Accounting Principles (GAAP) and Financial Accounting Standards Board (FASB) exist to make financial reporting consistent while reducing fraud and material errors. Because GAAP guidance is crucial for public and private companies depend heavily upon it to make financial decisions. Through GAAP, the entity understands how to properly carry out the accrual accounting process and most importantly when to recognize revenue. However, what happens when GAAP guidance is not sufficient or non-existent in its interpretations of gray areas? Here lies the question that accountants and the crypto-currency community of bitcoin has requested answers too for the last few years. After the release of Internal Revenue Service (IRS) tax…show more content…
Most entities do not have the technological capability to keep track of up to date bitcoin market prices at the time of bitcoin exchange. Providers such as BitPay or Coinbase have effectively made it easy to account for bitcoin by immediately transforming bitcoin into a legal unit of currency. For this reason, the business that accepts bitcoin are transferring bitcoin to a third party and the third party is transferring legal tender. Traditional accounting systems can then classify and record the transaction. Due to bitcoins nature and the legality of it the IRS has classified it as property and not currency for U.S. federal tax purposes. General tax principles that relate to property transactions apply to transactions using bitcoin and other virtual currencies. The IRS states virtual currency has an equivalent value in real currency, or that it acts as a convertible virtual currency (AICPA 2014). Bitcoin is a legal, financial investment and legal for trade and exchange into United States Dollars (USD) under IRS guidance. When receiving bitcoins as payment the coins are computed to gross income by using the fair market value of the virtual currency on that date. Gains or losses are classified as ordinary income or loss depending on whether the virtual currency is a capital asset in the hands of the taxpayer. A payment made using virtual currency is subject
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