Software: QuickBooks accounting software
QuickBooks does not allow you to make payment for a foreign currency bill (example: JPY) with another foreign currency bank account (USD) directly.
Assuming your base currency is SGD. You received a supplier bill in Japanese Yen (JPY) with an amount of 100,000Yen and you decided to make payment via the USD Bank account (actual payment made was USD930).
To complete the bill payment, you need to create 3 transactions:
- Pay JPY Bill uses a SGD Contra account (Bank account type)
- Use the Transfer Fund (or General Journal) transaction to transfer from USD bank to the SGD Contra account
- Use the General Journal to transfer the differences in the Contra account to the Exchange Gain/Loss account.
Assuming the exchange rate is 1Yen : 0.012SGD. You pay the JPY Bill of 100,000Yen (SGD1,200) from the Contra account. The double entry for this Bill Payment transaction will be:
Debit Accounts Payable (JPY): SGD1,200
Credit Contra: SGD1,200
Next, use the Transfer Fund transaction to transfer from the USD Bank account of USD930 to the Contra account, assuming the exchange rate is 1USD:1.3SGD. The double entry for this Transfer Fund transaction will be:
Debit Contra SGD1,209
Credit USD Bank SGD1,209
The balance of SGD9 in the Contra account is the difference of the Bill Payment for the JPY bill and the Transfer Fund from the USD bank, which is the exchange gain/loss. Use the General Journal transaction to reclassify the balances in the Contra account to the Exchange Gain/Loss account. The double entry for this journal will be:
Debit: Exchange Gain/Loss SGD9
Credit Contra SGD9