This chapter contains these topics:
To calculate and report realized and unrealized gains and losses
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
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.
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.
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 |
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).
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 |
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
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. |
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 |
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
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