Cryptocurrency and FASB Master Glossary definitions of cash and currency
Cryptocurrency and FASB Master Glossary definitions of cash and currency
Continuing my notes about digital assets accounting here and here. With the adoption of cryptocurrency as legal tender (see the announcement by Polygon), I wanted to discuss the common misconception that, I believe, was introduced in accounting profession by AICPA's Digital Assets Guide. The guide states that cryptocurrency cannot be treated as cash because the FASB definition of cash as items that are legal tender and backed by sovereign government:
Crypto assets will not meet the definition of cash or cash equivalents (as defined in the FASB ASC Master Glossary) when they are not considered legal tender and are not backed by sovereign governments. In addition, these crypto assets typically do not have a maturity date and have traditionally experienced significant price volatility
[AICPA Practice Guide "Accounting for and auditing of digital assets"]
However, if you open the actual definition given in the FASB ASC Master Glossary, you will see the following definition of the term "cash":
Consistent with common usage, cash includes not only currency on hand but demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. All charges and credits to those accounts are cash receipts or payments to both the entity owning t he account and the bank holding it . For example, a bank's granting of a loan by crediting the proceeds to a customer's demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made
[FASB ASC Master Glossary]
As you can see, there is no reference to legal tender or sovereign government back up. It appears that the definition everyone is writing about actually is the definition of currency given in the following IRS guidance on cryptocurrencies:
The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay for goods or services or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency - i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance - but it does not have legal tender status in any jurisdiction.
[IRS Notice 2014-21]
This guidance issued by IRS discuss only tax treatment of cryptocurrency transaction and is not a part of US GAAP requirements in any way. I wanted to clarify that I do NOT suggest that cryptocurrency should be accounted for as any other currency, but there is definitely a missing piece in the current guidance on digital asset accounting that will hopefully be addressed as part of the work on digital assets that was recently included in the FASB agenda as item titled "Accounting for Exchange-Traded Digital Assets and Commodities".