Revaluation

When you adjust the base currency value of balance sheet accounts that are maintained in a foreign currency, this is termed revaluation. You generally perform revaluations at the end of each accounting period to reflect the actual base currency value of assets and liabilities as exchange rates fluctuate between the base and foreign currencies. You make adjusting entries to the accounts that are being revalued with an offsetting entry to a revaluation gain or loss account. The gain or loss account is sometimes referred to as an unrealized exchange gain or loss.

In this example and as shown in this graphic, a London based subsidiary of a Swiss company records a purchase made in Mexican pesos. The Swiss company is owned by a United States corporation.

Multicurrency calculations

The following correlates the terminology and the currencies:

Term	Definition
Foreign currency	MXN (Mexican Peso)
Base currency	GBP (British pounds)
Functional currency	CHF (Swiss francs)
Reporting currency	USD (United States dollars)