This chapter contains these topics:
To calculate and report realized and unrealized gains and losses (for multi-currency invoices)
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)
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.
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).
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 |
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 |
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
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.) |
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 |
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
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