Crypto accounting doesn’t mean just a list of transactions
Don’t let the title on their website fool you. Some companies are advertising crypto accounting but in fact what they do is give you a list of transactions from the blockchain. That’s not exactly accounting but at least it’s a start.
The below charts gives an overview of crypto accounting software and the intersection between small and medium sized business vs larger enterprises.
Crypto accounting software focused on small medium business or SME/SMBs.
Cryptio seems to be the leader here. They integrate with Quickbooks and Xero which are the main accounting platforms for SME/SMBs. They also ask you for your preferred accounting method for crypto.
You are able to get crypto transactions into Cryptio either through a direct connection depending on the blockchain or exchange or by manually adding transactions directly into a Cryptio standard CSV template.
Once you get your transactions in, there is a weird labelling system. It’s not as easy as just choosing the account you want to allocate to the transaction. They do a good job at calculating net gain loss on each transaction that requires it.
When you have a trade transaction in Cryptio which requires moving money from 1 balance sheet account to another balance sheet account the journal entry doesn’t come out accurately. They also don’t parse out any realized digital currency net gain losses.
Overall the tool is good but it’s not there yet from an accounting standpoint. It also costs quite a lot for the value it brings as you still need to make quite a lot of manual adjustments.
Coinbooks is a Y Combinator startup which raised 3.8M right before joining YC. This company lacks accounting experience from our last conversation with them. They’re focus seems more on integrating as many chains and exchanges as possible and less so much on getting the accounting piece down right.
They also are integrating a lot of accounting softwares like Sage, Quickbooks, Xero and NetSuite. They have done a great job at partnering with the accounting community providing their customers many options of accountants to choose from. This is because product maturity still requires a lot of manual work.
Koinly is not crypto accounting software but it is cheap and most accountants use it as a way to pull transactions from the blockchain, label those transactions and then move the entire transaction list into excel to do their accounting.
Koinly has the richest breadth of blockchain and exchange connections. It’s also the simplest user experience. The app focuses more on retail taxes but accountants use it as a midterm solution for accounting.
There are no integrations with accounting softwares like Quickbooks and Xero so most of the journal will need to be booked manually.
Cointracking seems more geared towards portfolio tracking. Cointracking has many rich integrations with blockchains and also layers in DeFi transactions from liquidity pools, staking and others. It is similar to Koinly in the sense it is used as a bridge into the accounting world meaning it is used to pull and label transactions from the blockchain.
Once again, it has no integrations with accounting softwares like Quickbooks and Xero so most of the journal will need to be booked manually. But the functionality and reconciliation features are unrivalled here with Cointracking.
Crypto accounting software focused larger enterprise customers
Bitwave just raised 15 million in Series A at the time of writing this post. They have a range of integration with different blockchains and exchanges and also have integration with accounting tools such as Quickbooks, Sage, Xero and others but they don’t advertise strongly on their website.
They are likely moving towards bring the ledger inside Bitwave and housing the entire accounting ERP in one. The user experience is lacking with Bitwave because there is so much functionality. They are really more geared towards larger companies and will position themselves as the SAP of the crypto accounting/ERP space.
They also try to layer in some DeFi transactions and have good integrations with DeFi apps to assist. A really good option for anyone having a larger enterprise.
Tactic is new, having just raised 11M from FTX and others. They have integration with Quickbooks but not Xero. They have some exchanges and chains. Last I checked in November 2022, they did not ETH but had MATIC.
Any transactions that are outside the supported chains and exchanges of Tactic you’ll need to work with them directly to get your transactions manually uploaded by their internal team. The fees have a fixed account which the amounts consistently get booked to. You can’t however separate the fee accounts based on whether the fee should go into Cost of Goods of Sold or an expense account.
The company however mentioned they wanted to go upstream and focus on enterprise so not sure if they will continue to build for the SME or SMB segment. A quote from the CEO in a TechCrunch article “the company is primarily focused on supporting large, U.S.-based C-corps rather than early-stage startups.”
Crypto tax software which says they do some accounting
Taxbit raised 130M in 2021 and is very focused on tax specifically in the U.S market. They are great for automating filling tax forms in relation to your crypto transactions. They calculate net gain loss, identify capital gains tax and write off any losses from crypto.
Some accountants use them as a way to pull transactions, calculate gains and losses and then move that data into an excel or Google Sheet so they can do the accounting portion such as allocate each transaction into a specific account.
There are no accounting integrations via TaxBit so the journals still need to be booked manually. If you are filing taxes as an entity or individual, TaxBit is a pretty safe bet.
Accointing is a Swiss based company focusing more on European tax filing. They have integration with some exchanges like Coinbase, FTX, Binance and others. They assist with capital gains calculations, consolidate all your transactions into 1 place and allow you to automate the filing of tax returns by having ready forms.
Again some accountants will use them as a 1st step to help pull transactions and calculate gains and losses but ultimately the bookkeeping part needs to be done in excel before manually transferring the entries via journal entries into your accounting systems.
Crypto accounting leads to easier tax process
We’ve worked with a company where at year end they rush to file their tax returns. They send us all their wallets and exchanges and expect us just to do a simple process of filing tax returns. This job of a 1 shot file takes a longer time than if we were to account for your books correctly throughout the year either on a per quarter basis or even bi-annual basis.
As an accountant preparing your books to file taxes, we need to review income, parse out the fees associated with cost of goods sold vs expenses, calculate net gain losses either on a FIFO model or a weight cost average model and report year end profits.
The reason many accountants and clients do not opt for an accounting approach throughout the year is because of the administrative process imposed on the accounting and the heavy costs that need to be borne by the customer.
Detof - Crypto Accounting
Detof is working on a crypto accounting tool for ourselves but also a tool that can potentially help the wider community of accountants who face the same challenges as us. Our tool will focus on:
- Consolidate all crypto transactions including DeFi activity
- Reconcile transactions to ensure balances are correct and accurate
- Pull your chart of accounts and designate specific accounts to each transaction
- Tag your client so you can work more efficiently together rather than sending email and having calls
- Push those transactions into your accounting system such as Quickbooks, Xero, Sage or Dynamics through a manual journal that is correct.
Hope this article helps. Feel free to reach out to Detof if you have any additional questions.