How to deal with cryptocurrency transactions
This article explains how to manage cryptocurrency transactions in FreeAgent.
Cryptocurrencies such as Bitcoin, Ethereum and Litecoin aren’t currently part of the standard currency options in FreeAgent. This is because FreeAgent uses XE.com to convert from one currency into another, and cryptocurrencies are not exchanged using these kinds of currency exchange providers.
However, you can manage cryptocurrency transactions in FreeAgent by adding a dummy bank account and recording payments received by the business, and payments made by your business, in cryptocurrency. You can then record any fluctuations in the value of the currency. See below for more details.
In a hurry?
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Add a dummy bank account and give it a suitable name, and choose the currency you require.
- When receiving a payment in cryptocurrency, create an invoice and add a payment for the invoice manually in the cryptocurrency bank account.
- When making a payment in cryptocurrency, add a manual bank transaction in the cryptocurrency bank account.
- Add a manual bank transaction periodically as 'Realized Currency Exchange Gain / Loss' to record fluctuations in the value of the currency.
1. Add a dummy bank account
First, you’ll need to add a dummy bank account and give it a suitable name, such as ‘Cryptocurrency’, and choose the equivalent currency that you want to use when entering the cryptocurrency transactions.
2. Record the cryptocurrency transactions
The steps to take depend on whether your business received or paid the cryptocurrency payments.
Payments received in cryptocurrency
If someone paid your business in cryptocurrency credits, you'd create an invoice as normal.
Then to record the payment, you would add a manual bank transaction in the cryptocurrency bank account as an ‘Invoice Receipt’ for the relevant currency equivalent amount and explain it against the invoice.
Alternatively, you can add a custom income category for your cryptocurrency income and then add a manual bank transaction, explained as ‘Sales’, in the cryptocurrency bank account.
Payments made in cryptocurrency
If your business paid someone in cryptocurrency credits, you would record the payment by adding a manual bank transaction in the cryptocurrency bank account.
If you’re not sure which category to allocate the transaction to, or whether the purchase cost can be claimed as a business expense, please check with your accountant.
3. Record the currency fluctuations
As cryptocurrencies tend to fluctuate in value, you may also need to consider how to represent this in FreeAgent when the value of the currency increases or decreases. Please check with your accountant for more advice.
You could represent the change in currency valuation periodically, for example monthly, by adding a manual bank transaction in the cryptocurrency bank account.
Recording an increase in the value of the currency
Select ‘Other Money In’ as the transaction ‘Type’ and ‘Realized Currency Exchange Gain’ as the transaction ‘Category’.
Recording a decrease in the value of the currency
Select ‘Other Money Out’ as the transaction ‘Type’ and ‘Realized Currency Exchange Loss’ as the transaction ‘Category’.