Base Currency Adjustment Example
On March 20, a Canadian company issues a payroll advance to an employee in the United States. The Canadian to U.S. dollar exchange rate is 0.998.
General Ledger Impact for Employee Advance on March 20
|
|
Transaction Currency U.S. Dollars |
Base Currency Canadian Dollars |
||
|---|---|---|---|---|
|
Account |
Debit |
Credit |
Debit |
Credit |
|
Employee Advance |
2,000 |
|
1,996 |
|
|
Accounts Payable |
|
2,000 |
|
1,996 |
On April 1, the employee advance account is reduced to 0 when payroll is recorded. The Canadian to U.S. dollar exchange rate is 0.992.
General Ledger Impact for Employee Advance on April 1
|
|
Transaction Currency U.S. Dollars |
Base Currency Canadian Dollars |
||
|---|---|---|---|---|
|
Account |
Debit |
Credit |
Debit |
Credit |
|
Payroll Expense |
2,000 |
|
1,984 |
|
|
Employee Advance |
|
2,000 |
|
1,984 |
At the end of April, the transaction currency balance for Employee Advance is 0. However, due to the difference in exchange rates, the base currency account has a residual balance of 12.
Running currency revaluation at the end of April produces a base currency adjustment to clear the residual balance in the Employee Advance account.
General Ledger Impact for Employee Advance at End of April
|
|
Base Currency |
|
|---|---|---|
|
Account |
Debit |
Credit |
|
Matching Unrealized Gain/Loss |
12 |
|
|
Employee Advance |
|
12 |
At this point, the transaction currency and base currency balances for the Employee Advance account are 0, and further currency revaluation is not triggered for this account.