9 Overview to Currency Gains and Losses for A/P

This chapter contains these topics:

9.1 Objectives

  • To calculate and report realized and unrealized gains and losses

9.2 Overview

When you enter a foreign voucher, it is converted to the domestic currency of the company using the exchange rate on the voucher. At the end of an accounting period or when the voucher is paid, the exchange rate might have changed which will affect the domestic value of the voucher or payment. To track these changes, you need to:

  • Revalue your open foreign vouchers

  • Record your realized gains and losses when you make a payment.

Currency gains and losses consists of:

  • Understanding AAIs for A/P gains and losses

  • Calculating unrealized A/P gains and losses

Figure 9-1 Revaluing Process for Currency Gains and Losses

Description of Figure 9-1 follows
Description of "Figure 9-1 Revaluing Process for Currency Gains and Losses"

See Also:

9.3 What Are the Types of Gains and Losses?

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

  • Realized gains and losses, which are tracked on an ongoing basis and are recorded at the time you enter an A/P payment.

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

9.3.1 Example: Gain/Loss for a Foreign Voucher

The following is an example of a foreign voucher (USD) that was entered for a Belgian company (Euro - EUR). This illustrates how a foreign voucher can create gain or loss amounts for the domestic ledger (AA). The currency ledger never has a gain/loss amount since the foreign amounts remain the same.

9.3.1.1 Voucher and Payment

Item CA Ledger Transaction Amount CA Ledger Currency Code Exchange Rate (*) AA Ledger Domestic Amount AA Ledger Currency Code Gain (-)/ Loss (+)
Voucher Entry 100.00 USD 33.5 3,350 EUR  
Partial Payment (50%) current rate 50.00 USD 34.0 1,700 EUR 25
Partial Payment (50%) 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 33.5 1,675 EUR  

9.3.1.2 Journal Entries

Description Account AA Ledger Amounts CA Ledger Amounts
Voucher Entry Expense Account Accounts Payable 3,350 3,350- 100.00 100.00
Payment Processing Accounts Payable Realized Loss Cash 1,675 25 1,700 50.00 50.00
Revalue Open Items Unrealized Loss A/P - Other 75 75-  

9.3.2 Example: Gain/Loss for a Domestic Voucher - Detailed Restatement

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

9.3.2.1 Voucher and Payment

Item AA Ledger Domestic Transaction Amount AA Ledger Currency Code Exchange Rate (*) XA Ledger Alternative Currency Calculated XA Ledger Currency Code Gain (-)/ Loss (+)
Voucher Entry 85,000 COP 850 100.00 USD  
Payment Processing            
(current rate) 85,000 COP 860 98.84 USD 1.16-
(original rate) 85,000 COP 850 100.00 USD  

9.3.2.2 Journal Entries

Description Account AA Ledger Amounts XA Ledger Amounts
Voucher Entry Expense Account

Accounts Payable

 85,000

85,000-

 100.00

100.00-
Payment Processing Accounts Payable

Cash

Realized Gain

 85,000

85,000-

 100.00

98.84-

1.16-

9.4 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 alternative currency (USD). This illustrates how gain and loss records are created among the foreign, domestic, and alternative ledgers.

Figure 9-2 Creating Gain and Loss Records Among Foreign, Domestic, and Alternative Ledgers

Description of Figure 9-2 follows
Description of "Figure 9-2 Creating Gain and Loss Records Among Foreign, Domestic, and Alternative Ledgers"

Field Explanation
CA to XA No calculation is performed between the CA and XA ledgers. The net amount of the two previous calculations is (CA to AA and AA to XA) the equivalent of the gain/loss between the CA ledger and the XA ledger (transaction amount to restated amount).
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.

9.5 How Are Gains and Losses Calculated?

Gains and losses are calculated by measuring the changes in exchange rates during the time that a transaction is processed.

Detailed currency restatement performs two steps when calculating the gain or loss amount for a foreign transaction. These steps are described below. The examples in the steps use the following information:

Date Document CA Ledger (CLP) x Exchange Rate AA Ledger (COP) / Exchange Rate XA Ledger (USD)
06/01/17 Voucher 100,00 .75 75,000 750 100.00
  Payment 100,00 .76 76,000 800 95.00
  Gain (-)     1,000    
  Loss (+)         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 9-3 Converting from the AA Ledger to the XA Ledger

    Description of Figure 9-3 follows
    Description of "Figure 9-3 Converting from the AA Ledger to the XA Ledger"

  2. A gain/loss amount is also derived from the AA and XA ledgers. This amount is calculated using the voucher amount and the exchange rates for the voucher and payment. The difference between the 2 calculations translates to the gain/loss amount between the AA and XA ledgers.

Figure 9-4 Calculating the Gain /Loss Amount from the AA and XA Ledgers

Description of Figure 9-4 follows
Description of "Figure 9-4 Calculating the Gain /Loss Amount from the AA and XA Ledgers"