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How to Create a Crypto Chart of Accounts in Quickbooks

Umar Mallam Hassam
Umar Mallam Hassam
Jun 13, 2024
How to Create a Crypto Chart of Accounts in Quickbooks

gm accountants 👋

So your company had the wonderful idea of using crypto for payments, and it’s now up to you to figure out how to create that chart of accounts (COA) for your crypto transactions. If you agree not to use spreadsheets, you should keep reading. 

In this tutorial, you will learn how to import transactions from your wallet, categorize them according to your Quickbooks COA mapping, and sync them into Quickbooks using a crypto sub-ledger tool. An accounting software like Quickbooks in combination with a sub-ledger tool is a powerful combo for crypto accounting, and this guide will cover; 

  • Chart of Accounts Options
  • Creating the COA in Quickbooks by Token
  • Setting up a Sub-Ledger 
  • Creating the COA in Quickbooks by Wallet & Comparing with COA by Token

🎲 Chart of Accounts Options

In our previous article on ‘How to Prepare a Crypto Chart of Accounts’, we learned the following 3 options to create our COA; 

  • Group assets by individual token holdings
  • Group assets by wallets 
  • Group assets by wallets and individual token holdings

For this exercise, you will learn the first 2 options on how to create the COA by token holdings and by wallets. At the end of the article, you will be able to compare the balance sheet and P&L results for both. Note that there is no right or wrong method and it’s a matter of personal preference.

⚡Creating the Chart of Accounts in Quickbooks by Token

Head over to your Quickbooks account and in the sidebar, click Transactions > Chart of Accounts (COA).

Next, follow these steps to create the COA; 

  • Hover to the top right of your screen, click on ‘New’’, and add your token asset accounts. (Account Type: Current Asset, Detail Type: Inventory)

Note: I created individual token accounts for my significant holdings, and aggregated all other token holdings under an account called ‘Other Crypto Currency’.

Add Account in Quickbooks

Next, create your crypto-specific expense accounts. Again hover over to the top right of your screen, click on ‘New’’, and add the following;

  • Gas Fees (Account Type: Expenses, Detail Type: Bank Charges)
  • Realized Net Gain/Loss (Account Type: Expenses, Detail Type: Finance Cost)

🪖Setting up Sub-Ledger 

A crypto sub-ledger is the secondary ledger, and it is expected that the sub-ledger will have the ability to import the chart of accounts from Quickbooks, i.e. the main ledger. 

For this exercise, I’ve used Breezing as my sub-ledger. You can use any sub-ledger of your liking but do ensure your sub-ledger allows the following; 

  • To sync the Quickbooks COA you created, and
  • Automatic syncing of your wallet transactions into Quickbooks.

1. Link Chart of Accounts 

In Breezing, I proceeded to link my Quickbooks chart of accounts. Do check that the asset and expense accounts you created in Quickbooks have been correctly synced.

Link chart of accounts in Breezing

2. Add wallets 

Before choosing a sub-ledger, please make sure it supports your company’s data sources (i.e. blockchains, exchanges, custodians). Even if a sub-ledger claims to support the blockchain you require, it is advisable to ask for a trial period to test the integrity of the data first. There is fierce competition between sub-ledgers battling on who has the most integrations possible (i.e. blockchains, exchanges, custodians), and sometimes the data integrity is overlooked. For this exercise, I’m using 2 different wallets that contain transactions solely on EVM-based chains supported by Breezing. 

  • Treasury Wallet - 0xa7....ef59 
  • Operations Wallet - 0x47....bfcfa
Add wallets in Breezing

Once you’ve imported your wallets into the sub-ledger, you can manually perform a quick reconciliation of tokens appearing on the sub-ledger against tokens appearing on the block explorer. 

For the tokens listed above in my Treasury wallet, I quickly reconciled my token balances of ETH, DAO, and ERN with Etherscan, and no differences were noted. 

3. Automation Rules

For high volume and recurring transactions, it is advisable to use the automation rules features provided by the sub-ledger. For example, a rule might specify that a transaction involving a particular wallet address and token should be categorized as a specific type of revenue or expense.

In the absence of recurring transactions, you can start by automating gas fee bookkeeping entries and assigning them to the ‘gas fees’ account you created earlier in Quickbooks. 

Note: For gas fees, Breezing offers a different way of automating the entries. Head over to ‘Settings’ and choose ‘Gas Fees’ account under Company Fee Account.

4. Cost Basis Calculations

In most jurisdictions, cryptocurrencies are treated similarly to property for tax purposes, and you should calculate a realized gain/loss upon disposal (i.e swap, payment, trading, liquidity providing, off-ramping, bridging, etc..)

The realized gain/loss is the difference between the ‘fair value’ and the cost basis of the crypto asset. A core feature of a sub-ledger is to automate the realized gain/loss calculation of your transactions under various accounting methods like FIFO, LIFO, or WAC. 

Choose the recommended accounting method as per your jurisdiction, and run a cost basis calculation report, that will automatically calculate all the realized gain/loss upon disposal of your crypto assets. 

Using Breezing, in the upper-right corner, click on button ‘Calculate net gain/loss’ and choose ‘Select Max’ tokens.

Calculate realized gain/loss in Breezing

5. Categorizing Transactions 

For this exercise, I have categorized 4 different types of transactions - Inbound, Outbound, Swap & Internal Wallet transfers. Note that a realized gain/loss journal entry will only be created for the Outbound and Swap transactions. An internal transfer between wallets is not considered a disposal. Below is a snapshot of the transactions dashboard where you’ll be categorizing the wallet transactions. A few notes to navigate the transaction dashboard; 

  1. External wallet - you can create a contact name for every wallet address
  2. IN - Inbound transaction 
  3. OUT - Outbound transaction (where realized gain/loss and gas fees will be included)
  4. Trade - Trading transaction, and on the first line, you can see I swapped CVX for ETH
  5. Account - Categorization of account, which uses the COA on Quickbooks 
  6. Amount (Fiat) - The fiat amount you shall be seeing in Quickbooks. (since my sub-ledger is configured in USD, the column displays the USD amount)
  7. Fee (Fiat) - The amount booked as Gas Fees

Once all transactions have been categorized, you can sync them into Quickbooks.

Sync Quickbooks

👀 Creating the COA in Quickbooks by Wallet & Comparing with COA by Token 

1. Creating the COA in Quickbooks by Wallet

For the second option by wallet, you will be having your all your tokens grouped within the wallet, presented as a separate item line in the balance sheet. 

Follow the same step as explained above to create the COA by wallet;

  • Hover to the top right of your screen, click on ‘New’’, and add your wallet asset accounts. (Account Type: Current Asset, Detail Type: Inventory)

For this exercise, I have created 2 wallet accounts => Wallet 1 - Treasury & Wallet 2 - Operations.

I proceeded to repeat the same process described above to link my COA per wallet to the sub-ledger, categorized and synced the 4 transactions into Quickbooks.

2. COA by Wallet v/s COA by Token

Below are the final results when I synced the 4 transactions in Quickbooks, compared with the Token COA against the Wallet COA.A few observations are; 

  • There is an immaterial difference of USD 0.52 in the P&L which pertains to the realized gain/loss. This can be explained by rounding differences of different realized gain/loss amounts. 
  • The asset balances for ETH, USDT, and Wallet 2 - Operations are negative since I did not categorize all wallet transactions for the purpose of this exercise.
Balance sheet comparison by token against by wallet

As we stated above, there is no right or wrong method between choosing a token setup or a wallet setup, and it’s a matter of personal preference. The results will only differ in the balance sheet presentation of your crypto assets.

😎 Get Started Today 

That’s it folks, you’ve now taken your crypto accounting game to the next level. I hope you have enjoyed this tutorial on how to create a crypto chart of accounts in Quickbooks. 

The takeaway for you should be that bookkeeping for crypto transactions must be done in conjunction with a crypto sub-ledger, and not using spreadsheets. These sub-ledgers will most importantly facilitate the automation of your gas fees and realized gain/loss transactions and reduce the workload associated with month-end closing. 

Crypto accounting feels less intimidating with QuickBooks now.

Umar Mallam Hassam
Umar Mallam Hassam
Founder

Umar, a Chartered Accountant and previous External Auditor at Deloitte & BDO, is the creator of The Accountant Quits.

By educating accountants about crypto accounting, Umar aims to help accountants upskill themselves for new career opportunities in Web3.