Example: Monetary Account Valuation

Assume that the company is located in Great Britain and its base currency is British pounds (GBP). You have to pay several suppliers in Hong Kong dollars (HKD), so you establish a monetary bank account in HKD.

At the end of the month, you have 1,000,000.00 HKD in the bank account in Hong Kong. The account balance in the actual amounts (AA) ledger is 80,268.00 GBP. This account balance is based on the exchange rates of the individual transactions in the AA ledger. You must revalue the foreign bank account balance in the company currency using the exchange rate that is in effect at the end of the month, which is 1 HKD = 0.078996 GBP.

When you run the Monetary Account Valuation program, the system creates a reversing journal entry for an unrealized loss of 1,272.00 GBP. The account balance in the AA ledger is now 78,996.00 GBP. On the first day of the following month, the system reverses the journal entry and you can revalue the account again.