Task 3: Create accounts to track foreign-currency transactions
In order to correctly track transactions in a foreign currency, you must create a number of accounts that are set up to use that currency rather than Canadian dollars. You cannot simply use the same accounts you use for your Canadian dollar transactions because the dollar and other currencies rarely trade at par with one another (that is, one dollar rarely buys exactly one monetary unit in any other currency).
For every foreign-currency account you create, the software will automatically create a linked exchange account. For example, if you create a yen chequing account, a yen exchange account will be created automatically. Your software uses these dual accounts so that both the foreign currency amount and the local currency equivalent of a transaction can be viewed in your Balance Sheet.
You can let your software create the linked exchange account for you or you can specify one yourself. To create an account yourself, see ‘Set up accounts’. You will need to select the correct currency and exchange account in the Account Information window.
If you make foreign sales
Following is a list of the accounts you are likely to need if you accept payment from customers in a foreign currency.
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Asset account for tracking receivables (for instance, ‘Accounts Receivable–New Zealand’). This account must be assigned the foreign currency and not the Canadian dollar.
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Bank account where customer receipts in the foreign currency will be deposited. This can be a Canadian funds account if your bank accepts deposits in other currencies.
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Liability account for deposits received (if you allow customers to make deposits on orders). This account can be assigned the currency code for either the foreign currency or the Canadian dollar.
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Only receipt transactions that are in Canadian currency may be grouped as a deposit of undeposited funds. Therefore, you can only use a Canadian currency account as the linked account for undeposited funds.
If you make foreign purchases
Here’s a list of the accounts you are likely to need if you make payments to vendors in a foreign currency.
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Liability account for tracking payables (for instance, ‘Accounts Payable–Hong Kong’). This account must be assigned the foreign currency and not the Canadian dollar.
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Bank account that will be used to pay debts in a foreign currency. This can be a Canadian funds account if your bank writes checks for you in other currencies.
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Asset account for deposits paid (if you make deposits on orders). This account can be assigned the currency code for either the foreign currency or the Canadian dollar.
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Liability account for import duties collected (if you’re required to pay duty on goods you import). This account can be assigned the currency code for either the foreign currency or the Canadian dollar.
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If you plan to track unrealized gains and losses, you need to create an income account for this purpose. You may want to name it ‘Unrealized Currency Gain/Loss’ or something similar. We recommend that you consult your accountant to determine whether your business needs to track unrealized gains and losses and, if it does, the most appropriate way for it to do so. See ‘Tracking currency gains and losses’ for more information.
Depending on your business, you may need to create additional accounts to track foreign bank accounts, assets held overseas and the like. If you are unsure about the accounts, ask your accountant or a consultant.
