Tracking realized currency gains and losses

Realized currency gains and losses on sales/purchases are tracked differently than for deposits/withdrawals.

For realized gains or losses on sales and purchases, a posting is automatically made to the Currency Gain/Loss account. However, for realized currency gains and 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 software, a Currency Gain/Loss account is automatically created.

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 manageing your foreign currency exposure.

Sales and Purchases

At the time a currency gain or loss is realized, 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 Realized Gain/Loss report lists the currency gains and losses that have been automatically posted 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 1.80 dollars to the pound.

Your software posts £100 to the British receivables account (which is actually $100 on the balance sheet), $80 to the British receivables exchange account and $180 to the sales account.

The following month the British customer pays their account by depositing £100 into your London Chequing account, but the exchange rate has changed from 1.80 to 1.65 dollars to the pound. The deposit is valued at $165.

You originally made a sale that at the time was worth $180. When you received payment, it was worth only $165. Therefore, the $15 difference is a realized currency loss, and will be posted to the British receivables exchange 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 with a corresponding credit to your Currency Gain/Loss account.

Example

Say the original balance in your London Chequing account is zero and you then transfer $180 Canadian at an exchange rate of 1.80 dollars to the British pound account. The $180 is converted to £100 and deposited into your London Chequing account. Using its dual account system, your software posts £100 to the London Chequing account (which is shown as $100 on the balance sheet), and $80 to the London Chequing exchange account.

The following week you withdraw that £100 from the bank at an exchange rate of 1.75 dollars to the pound. Your software values the withdrawal at $175. You put £100 into the account that at the time was worth $180. When you withdrew the £100 from the account, it was worth only $175. Therefore, the $5 difference is a realized currency loss.

If you looked at your balance sheet, you would see a zero value for the London Chequing account, but $5 remaining in the London Chequing exchange account. You need to post the $5 in the exchange account to your Currency Gain/Loss account.