Software: MoneyWorks #accounting software
A supplier may request a deposit or an advance payment when you place an order if you do not have a credit payment term arranged. The accounting entries get complicated when the transaction is in a foreign currency. The accounts such as the Bank, Accounts Receivable and Accounts Payable can be in a foreign currency, but the other account type such as Current Liabilities, Current Assets, etc. will only be in a base currency.
For example, assuming your base currency is in a Singapore Dollars (SGD). You place an order of USD22,500.00 at an exchange of 1SGD:0.75USD and an advance payment of USD10,000 have wired from the USD Bank account. A payment transaction will automatically record in MoneyWorks when you process the Purchase Order with “Pay Deposit for Order” process. This payment:
Debit 170.200 Advance to a supplier account (a Current Assets account): 13,333.33
Credit 130.300 USD Bank account: 10,000
Credit 130.000-~~DEL USD Bank account: 3,333.33
(The advance payment to the supplier in Singapore Dollars: 10,000/0.75 = 13,333.00)
On the following month, the exchange rate has changed to 1SGD:0.74USD and you process the Purchase Order with “Receiving Goods with Invoice” process, a Purchase Invoice with the new exchange rate will record in MoneyWorks. The Purchase Invoice:
Debit 160.100 Inventory Asset account: 30,405.41
Credit 170.200 Advance to a supplier account: 13,513.51
Credit 230.200 Accounts Payable (USD) account: 12,500.00
Credit 230.200-~~DEL Accounts Payable (USD) account: 4,391.90
(The advance payment to a supplier in Singapore Dollars which has reversed: 10,000/0.74 = 13,513.51)
The deposited amount in US Dollars has reversed out from the Advance to a Supplier account when the Purchase Invoice has recorded. Due to a different in the exchange rate between the two transactions, there is a Singapore Dollars value left in the account. Working:
You have to pass a journal (or a receipt to simulate a journal) to “remove” the Singapore Dollars balance in the Advance to Supplier account. The journal debits 180.18 to the Advance to a Supplier account and credits 180.18 from the Exchange Gain/Loss account.
Managing foreign currency transactions can be complex, the accountant has to ensure each account has recorded correctly after the transaction has posted.
Note: The account code and account name used in this post are for illustration, your actual account code and name used may be different.