Catching Up on Crypto Accounting Backlog 

Nowadays, there are many companies that include digital assets like cryptocurrencies in their portfolio. However, if these assets are not properly documented, they might be the source of confusion, compliance problems, as well as profit inaccuracies. Managing past transactions, known as backlog accounting, is particularly crucial because crypto markets are highly volatile, and tax laws like the UAE Corporate Tax demand precise reporting of both realized and unrealized gains. 

This case study shows how Vertix Auditing helped an IT services company based in a Free Zone organize several years of unrecorded cryptocurrency transactions, making sure they followed all rules and clearly understood their finances. 

Client Background 

Our client is a Free Zone company that mainly provides web portal development, digital marketing, and CRM consulting services. In addition to its main IT work, the company also invested in cryptocurrencies as a secondary activity. 

The company’s crypto trading was done using both business funds and the owner’s personal fund. The owner’s personal contributions were meant to be recorded as a loan to the company, not as equity. However, because proper bookkeeping was not being carried out, there were no organized records for either type of investment. 

As the tax filing deadline got closer, the client needed a clear summary of their crypto investments, how much they owned, what it was worth, their profits or losses, and how it affected their accounts. 

Challenges Faced in Crypto Backlog Accounting 

The client had never maintained proper records of their cryptocurrency holdings since inception. Key challenges included:  

• Not a single crypto transaction was recorded in the books since the start of operations.  

• Funds injected from the company were recorded in the accounts, but without proper GL coding.  

• No chart of accounts or relevant GLs set up for crypto assets, gains/losses, or owner loan.  

• Owner’s personal contributions were not reflected as a loan in the books.  

• The client had no record of how many coins they owned or their exact value at the end of the year. They only had an approximate total amount.  

• The client required computation of realized gains/losses on trades and unrealized gains/losses on closing balances.  

• A strict deadline loomed due to the upcoming corporate tax return filing. 

Our Solution to Crypto Accounting Issues 

Vertix Auditing made and followed a clear plan to rebuild the client’s crypto accounts from scratch: 

1. Data Gathering and Validation  

• We obtained raw transaction data directly from the crypto exchange platform.  

• We also reconciled company bank statements to identify where the injected funds came from.  

2. Accounting Setup  

• A proper chart of accounts was created in the accounting software to record cryptocurrency investments, realized gains/losses, unrealized revaluations, and the loan from the owner.  

• We reclassified and corrected the client’s earlier incorrect entries for company-funded investments.  

3. Transaction Recording  

• Using the downloaded data, we built journal entries from scratch, ensuring each trade, deposit, and withdrawal was accurately reflected.  

• Owner’s personal investments were booked as a loan payable to shareholder, in line with their request.  

4. Profit/Loss Calculation  

• We calculated realized gains and losses on all trades executed during the year.  

• We calculated the number of each cryptocurrency the company still held at the end of the year. 

• Using year-end market prices, we computed the closing fair value and quantified the unrealized gain/loss.  

5. Reconciliation and Compliance  

• All crypto-related cash movements were reconciled with bank statements.  

• We recorded the necessary adjustments to ensure the company’s books were fully in line with UAE Corporate Tax requirements. 

Results and Client Feedback 

Even though the backlog covered several years and the crypto data was complex, Vertix Auditing finished the cryptocurrency accounting work before the corporate tax filing deadline. 

As a result: 

• The client gained a clear understanding of their crypto investments, including realized and unrealized gains, as well as closing balances. 

• Proper general ledgers and reporting systems were set up for future accounting. 

• The owner’s loan was correctly recorded and kept separate from company equity. 

• The company’s accounts were fully updated to meet tax rules. 

The client was completely satisfied, saying Vertix Auditing made an “impossible task” easy to understand and manageable. They have decided to keep working with Vertix Auditing for next year’s corporate tax filings and ongoing crypto bookkeeping support. 

Read More: How Different Countries Tax Cryptocurrency