12 Overview to Currency Gains and Losses for A/R

This chapter contains these topics:

• Section 12.1, "Objectives,"

• Section 12.2, "Overview,"

• Section 12.3, "What Are the Types of Gains and Losses?"

• Section 12.4, "Which Ledgers Are Used to Calculate Gains and Losses?"

• Section 12.5, "How Are Gains and Losses Calculated?"

12.1 Objectives

• To calculate and report realized and unrealized gains and losses (for multi-currency invoices)

12.2 Overview

When you enter a foreign invoice, the system converts it to the domestic currency of the company. At the end of an accounting period or when the invoice is paid, the exchange rate might have changed which affects the domestic value or the invoice or receipt. To track these changes, you need to:

• Re-value your open foreign invoices

• Record your realized gains and losses when you receive a receipt.

Currency gains and losses consist of:

• Understanding AAIs for gains and losses

• Calculating unrealized gains and losses

Figure 12-1 Revaluing Process for Currency Gains and Losses (A/R)

Description of "Figure 12-1 Revaluing Process for Currency Gains and Losses (A/R)"

See Also:

• Chapter 34, "Understand Detailed Currency Restatement."

12.3 What Are the Types of Gains and Losses?

Gains and losses on foreign currency transactions can be categorized as either:

• Realized gains or losses are tracked on an ongoing basis and are recorded at the time of an A/R receipt.

• Unrealized gains or losses apply to unpaid invoices or the open portion of partially paid invoices. They are calculated at the end of the period, at which time the system creates reversing journal entries.

12.3.1 Example: Gain/Loss for a Foreign Invoice

The following is an example of a foreign invoice (USD) entered for a Belgian company (Euro - EUR). This illustrates how a foreign invoice can create gain or loss amounts for the domestic ledger (AA).

12.3.1.1 Invoice and Receipt

Type	CA Ledger Transaction Amount	CA Ledger Currency Code	Exchange Rate (*)	AA Ledger Domestic Amount	AA Ledger Currency Code	Gain (-)/ Loss (+)
Invoice Entry	100.00	USD	33.5	3,350	EUR
Receipt (customer paid 50% of invoice amount) - current rate	50.00	USD	34.0	1,700	EUR	-25
Receipt (customer paid 50% of invoice amount) - original rate	50.00	USD	33.5	1,675	EUR
End of Month Valuation - current rate	50.00	USD	35.0	1,750	EUR	-75
End of Month Valuation - original rate	50.00	USD	35.5	1,675	EUR

12.3.1.2 Journal Entries

Description	Account	AA Ledger Amounts	CA Ledger Amounts
Invoice Entry	Revenue Account Accounts Receivable	-3,350 3,350	-100.00 100.00
Receipts	Accounts Receivable Realized Gain Cash	-1,675 -25 1,700	-50.00 50.00
Revalue Open Items	Unrealized Gain A/R - Other	-75 75

12.3.2 Example: Gain/Loss for a Domestic Invoice

The following is an example of a domestic invoice entered for a Colombian company (COP) that uses Detailed Currency Restatement processing. The alternate currency is USD. This illustrates how a domestic invoice can create gain or loss amounts for the alternate ledger (XA).

Item	Domestic Transaction Amount	AA Ledger Curr Code	Exchange Rate (/)	XA Ledger Alternate Currency (calculated)	Curr Code	Gain (-)/ Loss (+)
Invoice Entry	85,000	COP	850	100.00	USD
Receipt (customer paid 50% of invoice amount) (current rate) (original rate)	85,000 85,000	COP COP	860 850	98.85 100.00	USD USD	1.15

12.3.2.1 Journal Entries

Description	Account	AA Ledger Amounts	XA Ledger Amounts
Invoice Entry	Revenue Account Accounts Receivable	-85,000 (COP) 85,000 (COP)	-100.00 (USD) 100.00 (USD)
Receipts	Accounts Receivable Realized Loss Cash	-85,000 (COP) 85,000 (COP)	-100.00 (USD) 1.15 (USD) 98.85 (USD)

12.4 Which Ledgers Are Used to Calculate Gains and Losses?

The following is an example of a foreign transaction (Chilean Peso - CLP) entered for a Colombian company (COP) that uses an alternate currency (USD). This example illustrates how the system creates gain and loss records between the foreign, domestic, and alternate ledgers.

Figure 12-2 Creating Gain and Loss Records Between Foreign, Domestic, and Alternate Ledgers

Description of "Figure 12-2 Creating Gain and Loss Records Between Foreign, Domestic, and Alternate Ledgers"

Record	Description
AA to XA	The system calculates the gain/loss amount between COP and USD during the original posting of the batch.
CA to AA	The system calculates the gain/loss amount between foreign (CLP) and domestic (COP) amounts and writes it to the AA ledger. The Detailed Currency Restatement program restates this amount to the XA ledger.
CA to XA	The system performs no calculation between the CA and XA ledger. The net amount of the two steps above equals the gain/loss between the CA ledger and the XA ledger (transaction amount to restated amount.)

12.5 How Are Gains and Losses Calculated?

The system calculates gains and losses by measuring the changes in exchange rates when a transaction is processed.

Detailed Currency Restatement performs two steps when calculating the gain or loss amount for a foreign transaction.

The examples in the steps use the following information:

Date	Document	CA Ledger (CLP)	* Exchange Rate	AA Ledger (COP)	/ Exchange Rate	XA Ledger (USD)
06/01/17	Invoice Receipt Gain (-) Loss (+)	100,000 100,000	.75 .76	75,000 76,000 1,000	750 800	100.00 95.00 5.00 Net

1. The gain/loss record in the AA ledger (calculated between the CA and AA ledgers) is converted to the XA ledger using the exchange rate on the payment G/L date.

   Figure 12-3 Converting the AA Ledger to the XA Ledger

   
   Description of "Figure 12-3 Converting the AA Ledger to the XA Ledger"
   
   

2. A gain/loss amount is also derived from the AA and XA ledgers. The system calculates this amount using the invoice amount and the exchange rate difference between the invoice and receipt dates.

Figure 12-4 Calculating the Gain/Loss Amount from the AA and XA Ledgers

Description of "Figure 12-4 Calculating the Gain/Loss Amount from the AA and XA Ledgers"