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 pounds. You cannot simply use the same accounts you use for your pound transactions because the pound and other currencies rarely trade at par with one another (that is, one pound rarely buys exactly one monetary unit in any other currency).
For every foreign-currency account you create, AccountEdge Plus will automatically create a linked exchange account. For example, if you create a yen bank account, a yen exchange account will be created automatically. AccountEdgePlus 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 AccountEdge Plus 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.
Before you create an account, we suggest you review the following sections to get an understanding of the accounts you need to create.
If you make foreign sales
Here’s 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 debtors (for instance, ‘Debtors Accounts Euro’). This account must be assigned the foreign currency and not the British pound.
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Bank account where customer receipts in the foreign currency will be deposited. This can be a Sterling 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 British pound.
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Only receipt transactions that are in Sterling currency may be grouped as a deposit of undeposited funds. Also, you may only use a Sterling currency account as the linked account for undeposited funds.
Here’s a list of the accounts you are likely to need if you make payments to suppliers in a foreign currency.
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Liability account for tracking creditors (for instance, ‘Creditors Accounts Euro’). This account must be assigned the foreign currency and not the British pound.
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Bank account that will be used to pay debts in a foreign currency. This can be a Sterling funds account if your bank writes cheques 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 British pound.
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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 British pound.
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If you plan to track unrealised gains and losses, you need to create an income account for this purpose. You may want to name it ‘Unrealised Currency Gain/Loss’ or something similar. We recommend that you consult your accountant to determine whether your business needs to track unrealised 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.
