Example: Realized Gain/Loss on Foreign Currency Invoices and Receipts

In this example, a British company enters an invoice in U.S. dollars (foreign currency) and receives payment in USD (foreign currency).

Because of the exchange rate risk, the potential exists for one gain or loss, based on the fluctuation of exchange rates between the domestic currency and the foreign currency at the time payment is received.

Description	Currency	Amount	Exchange Rate January 1	Exchange Rate February 1
Invoice (domestic)	GBP	303.60
Invoice (foreign)	USD	500.00	1 USD = 0.6072 GBP
Receipt (foreign)	USD	500.00		1 USD = 0.6081 GBP
Standard gain/loss	GBP	+ 0.45

The foreign currency invoice on January 1 is 500.00 USD, which is 303.60 GBP in the domestic currency.

500.00 USD Ã 0.6072 = 303.60 GBP

The foreign currency receipt on February 1 is 500.00 USD.