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Applying Cross Currency Receipts - Examples

This section provides two examples of cross currency receipt applications. The first example shows how you can apply a receipt in one currency to an invoice in a different currency and the calculations Receivables performs during each step. In this example, both the invoice and receipt currencies are different from your functional currency.

The second example shows how you can apply a receipt to several invoices, each in a different currency.

Example 1

This example shows how you can apply a receipt in German Marks (DEM) to an invoice in Canadian dollars (CND). For this example, assume that your functional currency is US dollars (USD), and that there is no tax, freight, or applicable discount.

Step 1: Create a Transaction

On JAN-01 you create Invoice 101 for 100 Canadian dollars (CND). The corporate exchange rate on JAN-01 is 1 USD = 1.5 CND. Receivables uses this rate to calculate the amount of the invoice in your functional currency to be 66.67 USD (100 / 1.5 = 66.67).

Receivables creates corresponding journal entries for this amount in both the invoice and your functional currency:

DR Accounts Receivable		100 CND [66.67 USD]
		CR Sales				100 CND [66.67 USD]

Step 2: Enter and Apply Receipt

On JAN-31, you receive payment of 200 DEM for Invoice 101. Your customer informs you that the entire amount (200 DEM) is a partial payment of 90 CND for Invoice 101. The corporate exchange rate on JAN-31 is 1 USD = 3.5 DEM. When you enter the receipt information, Receivables uses this rate to calculate a receipt amount in your functional currency of 57.14 (200 DEM / 3.5 CND = 57.14 USD).

You choose the Applications button, then enter '101' in the Transaction Number field. Receivables enters the Balance Due in both the invoice and your functional currency.

The Applications window now appears as shown below:

Trx No Bal Due Base Bal Due Amount Applied Amt Appl. Base Cross Curr Rate Allocated Rcpt Amt Allocated Rcpt Amt Base FXGL
101 66.67 100.00            
Table 1 - 16. (Page 1 of 1)

Following your customer's remittance information, you enter a new value of '90' in the Amount Applied field. Receivables automatically calculates the Amount Applied in your functional (base) currency and updates the Balance Due in both your functional and the invoice currency.

The Applications window now appears as shown below:

Trx No Bal Due Base Bal Due Amount Applied Amt Appl. Base Cross Curr Rate Allocated Rcpt Amt Allocated Rcpt Amt Base FXGL
101 6.67 10.00 90.00 60.00        
Table 1 - 17. (Page 1 of 1)

Calculations

Balance Due: 100 - 90 = 10 (CND)
Balance Due Base: 10 / 1.5 = 6.67 (USD)
Amount Applied Base: 90 / 1.5 = 60 (USD)

Next, you enter the amount of the receipt to apply to this invoice. You enter 200 DEM in the Allocated Receipt Amount. Receivables uses this amount to determine the Cross Currency Rate of 2.222222. Receivables then determines the Allocated Receipt Amount in your functional (base) currency of 57.14 USD, using the exchange rate as of the receipt date (see below). Finally, Receivables calculates a Foreign Exchange Loss of 2.86 USD.

The Applications window now appears as shown below:

Trx No Bal Due Base Bal Due Amount Applied Amt Appl. Base Cross Curr Rate Allocated Rcpt Amt Allocated Rcpt Amt Base FXGL
101 6.67 10.00 90.00 60.00 2.222222 200.00 57.14 <2.86>
Table 1 - 18. (Page 1 of 1)

Calculations

Cross Currency Rate: 90 CND x 2.222222 = 200 (DEM)
Allocated Receipt Amt: 200 DEM / 3.5 = 57.14 (USD)
FXGL: 57.14 USD - 60 USD = <2.86> (USD)

When you save this application, Receivables creates the following accounting entries: 

DR Cash				200 CND [57.14 USD]
DR Foreign Exchange Loss	0 DEM [2.86 USD]
		CR Accounts Receivable		90 CND [60 USD]

Example Summary

The table below summarizes each step in this example and the corresponding calculations that Receivables performs.

Action Exchange Rate Calculation
You create Invoice 101 for 100 CND. 1 USD = 1.5 CND (exchange rate on invoice date) 100 CND / 1.5 = 66.67 USD
You enter receipt for 200 DEM. Receivables calculates amount in functional currency. 1 USD = 3.5 DEM (exchange rate on receipt date) 200 DM / 3.5 = 57.14 USD
You enter 90 CND in Amount Applied field. Receivables calculates Amount Applied in your functional currency. 1 USD = 1.5 CND 90 CND / 1.5 = 60 USD
You choose to apply the entire 200 DEM receipt to Invoice 101. Receivables calculates the cross currency exchange rate from this value. 2.222222 (cross currency rate derived by system) 200 DEM / 90 CND = 2.222222
Receivables calculates Allocated Receipt Amount in your functional currency. 1 USD = 3.5 DEM (as of JAN-31, receipt date) 200.00 / 3.5 = 57.14
Receivables calculates Foreign Exchange Gain or Loss. (NA) 57.14 USD - 60 USD = <2.86> USD

Table 1 - 19. (Page 1 of 1) Applying Cross Currency Receipts

Example 2: Applying a Receipt to Several Invoices in Different Currencies

Using the same procedure described in the previous example, you can apply a receipt in one currency to several transactions, each in a different currency.

As in Example 1, to apply a receipt to several transactions in different currencies, your customer must provide detailed remittance information.

For example, your customer remits a Receipt 1234 for 900 DEM and includes the following information:

Inv No. Date Inv. Balance Paid Amt. Rate to DEM DEM Remitted  
101 1-JAN 100 CND 90 CND 2.222222 200.00  
102 2-JAN 100 USD 100 USD 3.4692 346.92  
103 4-JAN 500 FRF 500 FRF .66230 331.15  

      Total Remitted Amount: 878.07 DEM  
      On Account: 21.93  
      Total Remittance: 900.00 DEM  

Note: In this example, your customer's remittance advice included rate information for each invoice. This information is an alternative to requiring that your customer provide the Allocated Receipt Amount for each invoice. Receivables automatically calculates the Allocated Receipt Amount for each application.

After you enter and apply the receipt according to your customer's remittance information, the Applications window appears as shown below:

Trx No Bal Due Base Bal Due Amount Applied Amt Appl. Base Cross Curr Rate Allocated Rcpt Amt Allocated Rcpt Amt Base FXGL
101 6.67 10.00 90.00 60.00 2.222222 200.00 57.14 (2.86)
102 0.00 0.00 100.00 100.00 3.469200 346.92 99.12 (0.88)
103 0.00 0.00 500.00 96.15 .662300 331.15 94.61 1.54
On Account           21.93 6.27  
Table 1 - 20. (Page 1 of 1)

Suggestion: You can also use the Receivables Mass Apply feature to automatically select transactions for cross currency receipt application. For more information, see: Automatically Selecting Invoices for Cross Currency Receipt Application.

Using the Cross Currency Exchange Gain/Loss Report

Receivables lets you review detailed information about your cross currency settlements. The Cross Currency Exchange Gain/Loss report lets you analyze each cross currency receipt application for a customer, customer site, receipt date range and receipt currency. This report is useful when you need a record of the cross currency rates used in your cross currency receipt applications.

The Cross Currency Exchange Gain/Loss report provides much of the same information as the Applications window during cross currency receipt application. In addition, this report provides a 'Rate Reconciliation' section that shows what the foreign exchange gain/loss for an application would have been if you had used the cross currency rate maintained in Oracle General Ledger. This information lets you analyze any significant discrepancies in the FXGL that can result from cross currency receipt applications.

To illustrate the Rate Reconciliation section of the report, consider Example 1 in this section where the cross currency rate used (in accordance with the remittance information) in the application was 2.222222. The Rate Reconciliation section of Cross Currency Exchange Gain/Loss report will default the system's Corporate rate, for example, between CND and DEM on 31-Jan of 2.309444. Based on this rate, it would have taken 207.85 DEM to close 90 CND (where 90 CND x 2.309444 = 207.85 DEM) of the customer's balance. In this case, you would have experienced a loss of 0.61 USD instead of the realized loss of 2.86 USD (refer to Example 1).

The report shows that the variance between the foreign exchange loss you actually experienced and the loss you would have experienced is 2.25 (2.86 - 0.61). This detailed information may be necessary to determine whether the cross currency rate used by your customer was appropriate. See: Cross Currency Exchange Gain/Loss Report.

See Also

Creating On Account Credits

Entering Receipts

Foreign Currency Transactions

Applying Cross Currency Receipts

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