How to receive or pay an invoice with a different currency?

Assuming you invoiced a foreign customer US$10,000. But, instead of paying you in US dollars, the customer remitted EUR 9,257.30.

How are you going to record the receipt?

MoneyWorks will take care of the currency differences. You can receive or pay an invoice with your home or another currency. Like the scenario above, you invoiced the customer in USD but received in EURO. Or, in some cases, you may receive a USD purchase invoice but pay the supplier with your SGD bank account.

Based on the above scenario, you have invoiced the customer US$10,000. To change the receiving currency in the receipt, you first select the EURO bank account from the Bank field, and you will get a message when there is a currency difference between the receivable and the bank:

‘You will be asked for a clearing account and an amount for this bank account when you OK the transaction.’

What is a clearing account?

A clearing account is a bank account type, a transit account you use to hold money temporarily before transferring it to the receiving bank account later.

MoneyWorks will ask for the ‘USD clearing account’ (same currency as the receivable) and EURO amount received (e.g. ERU 9,257.30) after you have selected the invoice to pay and OK the receipt.

The receipt debits the USD clearing account and credits the USD accounts receivable. For example (if we based on the exchange rate of USD 0.7463 to 1 Singapore dollar), the receipt:

DR. USD clearing account: 10,000
DR. USD clearing account ~ DEL: 3,399.44
CR. USD accounts receivable 10,000
CR. USD accounts receivable ~ DEL: 3,399.44

Note: the *DEL is a delta account for capturing the value differences between the transaction and base currency (a.k.a. home currency).

MoneyWorks will then auto-create a payment transaction (Transfer fund) from the USD clearing to the EURO bank account (the receiving bank).

Received a different currency
The exchange gain or losses

There will be a realised exchange gain or loss when there is a difference in the exchange rate between the invoice and payment (or between the transfer fund and the system rate).

How does the system calculate the exchange gain/loss?

Let’s say the exchange rate is:
1SGD: 0.7463USD
1SGD: 0.6900 EUR

Based on US$10,000, the receipt:
DR. USD clearing account: 10,000
DR. USD clearing account~~~DEL: 3,399.44

The total will be S$13,399.44

EUR 9,257.30 received is equivalent to S$13,416.38 (based on the 0.6900 exchange rate), and the transfer fund (payment transaction) will have an exchange gain/loss of 16.94 (13,399.44 – 13,416.38), the transfer fund (payment):

DR. EURO Bank: 9,257.30
DR. EURO Bank~DEL: 4,159.08
CR. USD clearing account: 10,000
CR. USD clearing account~DEL: 3,399.44
CR. Exchange gain/loss: 16.94

MoneyWorks’ multi-currency feature will be handy for growing businesses that trade globally with more than a currency. Book a free demo to find out more.