Tracking realised currency gains and losses

Realised currency gains and losses on sales and purchases are tracked differently to those on deposits and withdrawals.

For realised gains or losses on sales and purchases, a posting is automatically made to the Currency Gain/Loss account.

For realised currency gains or losses on transfers—deposits and withdrawals—you need to make a general journal entry to the Currency Gain/Loss account.

When you activate the multiple-currency feature in your AccountEdge software, a Currency Gain/Loss account is created automatically.

note : Large foreign currency exposure

If you have a large foreign-currency exposure, you may require a more detailed analysis than posting to a single Currency Gain/Loss account provides. In this case, we recommend that you consult your accountant for further advice about managing your foreign currency exposure.

Sales and purchases

When a currency gain or loss is realised, that is, a payment is received or made, an automatic posting is made to the Currency Gain/Loss account and to the exchange account for the foreign currency.

The Currency Realised Gain/Loss report lists the currency gains and losses that have been posted automatically through sales and purchases during the month for foreign-currency transactions.

Example

You make a sale to a British customer for £100 at an exchange rate of $2.5 to the pound.

Your AccountEdge software posts $100 to the British pound receivables account, $150 to the British pound receivables exchange account and $250 to the sales account.

The following month the British customer pays their account by depositing £100 into your British bank account, but the exchange rate has changed from $2.5 to $2.3 to the pound. The deposit is valued at $230.

You originally made a sale of £100 that at the time was worth $250. When you received payment, it was worth only $230. Therefore, the $20 difference is a realised currency loss, and will be posted to the British pound receivables exchange account and to the Currency Gain/Loss account.

Transfers

Currency gains and losses that occur through the transfer of funds need to be recorded by a general journal entry.

At the end of the month, you can look at the value of your foreign accounts and use the Currency Calculator (from the Help menu at the top of the screen) to calculate their true values in local currency at that time.

You can then create a general journal entry where losses are posted as credits to the exchange account with a corresponding debit to your Currency Gain/Loss account. Gains are posted as debits to the exchange account with a corresponding credit to your Currency Gain/Loss account.

Example

Say the original balance in your British bank account is zero and you then transfer $250 at an exchange rate of $2.5 to the pound into your British bank account. Your AccountEdge software converts the $250 to £100 and deposits it into your British bank account. Using your AccountEdge software’s dual account system, £100 is posted to the British bank account, and $150 to the British bank exchange account.

The following week you withdraw that £100 from the bank at an exchange rate of $2.3 to the pound. Your AccountEdge software values the withdrawal at $230. You put £100 into the account that at the time was worth $250. When you withdrew the £100 from the account, it was worth only $230. Therefore, the $20 difference is a realised currency loss.

If you looked at your balance sheet, you would see a zero value for the British bank account, but $20 remaining in the British bank exchange account. You need to post the $20 from the exchange account to your Currency Gain/Loss account.