NFTs have transformed from ordinary digital collectibles into real corporate assets and revenue streams. Gaming studios hold in-game NFT inventories worth millions of dollars. DAOs accumulate blue-chip collections as strategic treasury assets. Content creators also earn ongoing royalties from secondary markets.
All these have significantly contributed to the skyrocketing NFT transactions with volumes exceeding $25 billion in 2024. However, finance teams face audit challenges without clear NFT accounting frameworks. Hence, they need defensible treatment under established standards to satisfy auditors, regulators, and stakeholders expecting institutional-grade financial reporting.
This institutional adoption pressures companies to establish standardized accounting practices, with major corporations, including Nike, Adidas, and Starbucks, launching NFT initiatives that require proper balance sheet accounting treatment.
What Are NFTs as per Accounting Standards?
NFTs don’t fit neatly into traditional accounting categories. Since IFRS and US GAAP offer no NFT-specific guidance, companies must assess the NFT’s purpose and economic substance to determine classification and treatment. This lack of specific guidance means accounting treatment varies significantly across organizations.
Classification Options
Intangible Assets: This is the most common NFT classification under GAAP under IAS 38 (IFRS) or ASC 350 (US GAAP). Applies to non-physical assets providing identifiable future economic benefits. Corporate NFT holdings for investment purposes typically use this treatment.
Inventory: Appropriate for creators, traders, or gaming companies holding NFTs for sale in ordinary business operations. This classification affects recognition timing and measurement approaches, particularly when using crypto accounting methods like FIFO for valuation. Gaming companies and NFT marketplaces typically apply inventory treatment.
Financial Assets: Rare cases where NFTs represent underlying financial instruments. Most traditional NFTs don’t qualify due to their unique nature and lack of contractual cash flows.
Investment Property: Potentially applicable for virtual real estate NFTs that generate rental income in metaverse environments.
Accounting Treatment of NFT Purchases
Under IFRS (IAS 38 - Intangible Assets)
Companies recognize NFTs initially at cost, including purchase price, gas fees, and transaction costs. This captures the full economic investment required to acquire the NFT.
Subsequent measurement offers two approaches:
- Cost Model: Maintains historical cost less accumulated impairment losses. This provides a conservative balance sheet presentation and is preferred by most companies due to implementation simplicity.
- Revaluation Model: Allows fair value adjustments if active markets exist and reliable measurement is achievable. However, illiquid markets and subjective valuation create practical challenges for most NFT collections.
Under US GAAP
US GAAP requires historical cost basis with strict limitations:
- Initial cost recognition, incorporating all acquisition expenses
- Prohibition of upward revaluation above original cost
- Impairment loss recognition when the fair value drops below the carrying amount
- Permanent impairment without reversal possibilities
US GAAP’s conservative approach provides a predictable financial statement presentation but may not accurately reflect economic reality in the context of appreciating NFT markets.
Key Purchase Considerations
Purpose Classification: Investment NFTs qualify as intangible assets. Inventory classification applies to NFTs held for resale.
Cost Basis Tracking: Include gas fees, marketplace fees, and direct acquisition costs in the asset’s initial value.
Audit Trail Requirements: Maintain blockchain transaction hashes, timestamps, valuation documentation, and supporting evidence for all cost components using a comprehensive digital asset accounting platform.
How to Record NFT Sales and Revenue from Royalties
Primary NFT Sales
NFT sales revenue recognition follows established control transfer principles under both frameworks. IFRS 15 requires recognizing revenue when control over the goods or services is transferred to the buyers. This typically occurs when blockchain transactions confirm ownership transfer.
US GAAP ASC 606 applies similar requirements using the 5-step revenue recognition model. Companies identify performance obligations, determine transaction prices, and recognize revenue upon obligation satisfaction.
Secondary Sale Royalties
Ongoing NFT royalty accounting treatment requires careful contract analysis and systematic tracking. Recognition timing depends on smart contract terms rather than cash receipt timing.
Companies classify revenue as royalty income or other operating revenue based on the company’s business model and royalty significance to operations.
Contract-by-contract tracking becomes essential when managing multiple NFT collections with varying royalty percentages across different marketplaces and blockchain networks.
Transaction Type | IFRS Treatment | US GAAP Treatment |
Primary NFT Sale | Revenue at control transfer (IFRS 15) | Revenue per ASC 606 framework |
Secondary Royalties | Income when earned per contract terms | Income when earned per contract terms |
NFT Trading (Inventory) | Sales revenue less cost of sales | Gross revenue recognition approach |
How to Handle Fair Value Revaluation and Impairment of NFTs
IFRS Revaluation Approach (IAS 38)
Companies can revalue intangible assets with active markets, enabling reliable fair value measurement. Implementation requires using floor prices from major marketplaces like OpenSea and Blur.
Revaluation increases flow through other comprehensive income unless reversing previous impairment losses. This affects equity presentation while avoiding income statement volatility.
US GAAP Impairment-Only Model
US GAAP prohibits upward revaluation above historical cost. Companies must monitor for impairment indicators regularly and test when events suggest carrying amounts may not be recoverable.
Impairment losses are recognized immediately in current period income statements with no possibility for subsequent reversal. Understanding how crypto assets gain or lose value helps finance teams identify triggers for impairment.
Practical Valuation Challenges
Floor Price Tracking: Provides baseline valuations for collections with active secondary markets. However, unique characteristics create complexity requiring individual assessment.
Market Volatility: Consider recent transaction volumes, price stability trends, and market conditions when determining fair values for financial reporting.
Metadata Dependencies: Utility features, rarity characteristics, and collection-specific factors influence market values beyond simple floor price references.
NFT Accounting Challenges for Web3 Startups and DAOs
Common Pain Points
Cost Basis Complexity: Tracking acquisition costs across multiple blockchain transactions and varying gas fee structures complicates record-keeping. Cross-chain operations add complexity when NFTs move between different networks.
Royalty Split Management: Revenue sharing across multiple wallets and stakeholder groups requires sophisticated tracking systems. Smart contracts may distribute royalties to multiple recipients with varying percentages, requiring advanced crypto asset management strategies.
Metadata Inconsistencies: Across platforms, valuation difficulties arise when NFT characteristics change over time. Gaming NFTs with upgradeable features present particular challenges for consistent valuation.
Revenue Recognition: Volatile markets present timing challenges when NFT values fluctuate between sale agreements and transaction confirmations. Network congestion can delay transaction finality, creating revenue recognition timing issues.
Audit Trail Maintenance: Becomes challenging when transactions span multiple wallets and marketplaces. Auditors require comprehensive documentation linking blockchain transactions to accounting records.
Poor NFT accounting practices lead to misstated asset values, incorrect revenue recognition, and issues with investor confidence. DAOs holding significant NFT treasuries are facing scrutiny from stakeholders who expect transparent accounting.
How KoinX Books Automates NFT and Royalty Accounting
KoinX Books provides comprehensive automation, eliminating manual complexities through enterprise-grade connectivity and calculation capabilities.
Key Features
Multi-Chain Detection: Automatically identifies NFT transactions across connected wallets covering Ethereum, Solana, Polygon, and other major networks. Real-time monitoring ensures complete transaction capture without manual oversight.
Smart Categorization: Distinguishes between purchases, sales, royalty payments, and transfers using contract source matching and transaction pattern recognition. Auto-categorization of royalty vs sale income with contract source matching reduces manual review requirements.
Fair Value Management: Integrates NFT price oracles and marketplace APIs to provide current valuations for financial reporting. Real-time pricing data supports accurate revaluation procedures and impairment testing with automated flags for potential impairment indicators.
Compliance-Ready Reporting: Generates audit-ready journal entries under both IFRS and US GAAP frameworks with comprehensive supporting documentation. Ready-to-export journal entries include NFT IDs, timestamps, and price feeds for complete audit trails.
Royalty Tracking: Monitors ongoing income streams with automated recognition based on smart contract terms and marketplace notifications. The platform tracks royalty percentages and payment frequencies across multiple collections, ensuring accurate NFT royalty accounting treatment.
The platform serves Web3 gaming studios, metaverse projects, creator DAOs, and organizations with substantial NFT holdings that require enterprise-grade accounting precision.
Conclusion
Structured NFT accounting becomes essential as the ecosystem matures and regulatory scrutiny intensifies. Manual tracking creates operational risks as portfolios scale across multiple chains and marketplaces.
Automated platforms like KoinX Books help Web3 companies maintain audit-ready records while supporting institutional adoption requirements. Enterprise-grade accounting controls minimize errors, ensure compliance, and provide the transparency necessary for sustained ecosystem growth.
Streamline NFT accounting, royalty tracking, and reporting — all from one automated dashboard with KoinX Books.
Frequently Asked Questions
Are NFTs capital assets or inventory?
Classification depends on business purpose and holding intent. Investment NFTs qualify as capital assets while NFTs created for resale constitute inventory.
How to track NFT royalties on-chain?
Monitor smart contract events, marketplace APIs, and automated payment notifications. KoinX Books automatically detects royalty payments and matches them to original NFT sales.
Can gas fees be included in the cost of acquisition?
Yes, gas fees directly related to acquiring NFTs should be capitalized as part of the asset’s cost basis under both IFRS and US GAAP frameworks.
You can learn more about this in our post on How to Report Crypto on Taxes.
How often should NFT impairment testing be done?
Test when impairment indicators exist, including significant floor price declines, collection abandonment, or marketplace delisting. Many companies conduct quarterly assessments of their material holdings.
What if the NFT floor price is missing or inconsistent?
Utilize alternative valuation methods, such as discounted cash flow analysis for utility-generating NFTs, independent appraisals, or peer comparison approaches with appropriate adjustments.
