Credit Adjustment Scenarios
An adjustment which is posted against a bill after the bill completion is treated as payment towards the bill. The following scenarios indicate how foreign exchange gain or loss is calculated for credit adjustments which are created against a bill after the bill completion:
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Scenario 1 — Adjustment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Different
Bill Completion Date (04–30–2015) Adjustment Freeze Date (05–10–2015) Exchange Rate From USD USD Exchange Rate To INR INR Exchange Rate 50 40 Invoice/Adjustment Currency INR INR Invoice Amount 1000 - Base Currency USD USD Booked Revenue in Base Currency 1000/50 = 20 - Adjustment Amount - 400 Adjustment Amount in Base Currency on Bill Completion Date - 400/50 = 8 Realized Revenue (Adjustment Amount) in Base Currency on Adjustment Freeze Date - 400/40 = 10 Foreign Exchange Gain or Loss - 8–10 = –2 Observation: In the Scenario 1, there is foreign exchange gain of 2 USD on 05–10–2015 because of difference in exchange rate.
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Scenario 2 — Adjustment Freeze Date Not Equal to Bill Completion Date; Exchange Rate is Different
Bill Completion Date (04–11–2014) Adjustment Freeze Date (04–30–2014) Exchange Rate From USD USD Exchange Rate To INR INR Exchange Rate 55 60 Invoice/Adjustment Currency INR INR Invoice Amount 2000 - Base Currency USD USD Booked Revenue in Base Currency 2000/55 = 36.36 - Adjustment Amount - 200 Adjustment Amount in Base Currency on Bill Completion Date - 200/55 = 3.63 Realized Revenue (Adjustment Amount) in Base Currency on Adjustment Freeze Date - 200/60 = 3.33 Foreign Exchange Gain or Loss - 3.63–3.33 = 0.30 Observation: In the Scenario 2, there is foreign exchange loss of 0.30 USD on 04–30–2014 because of difference in exchange rate.
Multi-currency is not supported while creating credit adjustments against a bill after the bill completion. Therefore, the credit adjustment’s currency must be same as the invoice currency.
If the amount of credit adjustment exceeds the bill amount, you need to match the excess amount against another bill while freezing the adjustment. Otherwise, the adjustment is not considered during foreign exchange gain loss calculation.
If a credit adjustment is cancelled, reverse financial transactions are created. These financial transactions are not considered during the foreign exchange gain loss calculation.