Tag Archives: Exchange Gain/Loss

Year-end home currency revaluation

Software: Intuit QuickBooks accounting software

Home Currency Revaluation is a task which you have to do during financial year-end closing. It revalues the foreign currency bank balances and any outstanding foreign currency’s receivable and payable.

You should not record any more foreign currency transactions in the year-end closing period once revaluation has done.

The home currency revaluation process includes:
– Set the year-end closing exchange rate
– Print a Unrealised Gains and Losses report
– Process home currency adjustment
– Reverse the home currency adjustment journal on the following period.

The Unrealised Gains and Losses report is in the Company & Financial, a sub-menu of the Reports menu. This report shows the gains and losses of each foreign currency account and will use as a supporting document for the adjustment.

You can find the Home Currency Adjustment feature under the Manage Currency, a sub-menu of the Company menu. Set the adjustment date and change the exchange rate if required, then select the accounts/names (you can click the Select All button at the bottom to select all foreign currency accounts) and hit the Save & Close button to proceed with the home currency adjustment. An exchange journal will create automatically to debit/credit the foreign currency account and credit/debit the exchange gains/losses account.

QuickBooks Home Currency Adjustment

QuickBooks captures the realised exchange gains or losses when the payment or receipt of the outstanding bill or invoice has recorded; therefore, the unrealised exchange journal which created during the home currency revaluation has to reverse on the first day of the following period. QuickBooks Premier and Enterprise Desktop version have a Reverse feature which located at the top of the journal, just click the Reverse button of the exchange journal to reverse it.

Discuss with your accountant to find out more about home currency revaluation if you are not sure about it.

 

Reverse backdated exchange rate change

Software: MoneyWorks #accounting software

You can have foreign currency set in accounts such as the bank, accounts receivable and accounts payable. When there is a rate change, MoneyWorks automatically creates two exchange rate journals. One is to revalue the foreign currency balances due to a change in the exchange rate; another is a reverse of the revaluation journal on the following open period.

Below is an example illustrate how does a change in exchange rate affects the account.

Assuming you start tracking the multiple currencies from January 2016. You added the currency with an exchange of 1SGD:0.7432USD. All the open financial period, let’s say you have already opened from January to March 2016, will have the exchange rate of 1SGD:0.7432USD set. Any transactions in US Dollar added within these three periods will be using this exchange rate.

On 8th January, you record a Sales Invoice of US$10,000 at an exchange rate of 1SGD:0.7432USD. The Singapore Dollars equivalent amount of this US Dollars invoice is S$13,455.33. The double entry behind this Sales Invoice:

Debit USD Accounts Receivable: 10,000
Debit USD Accounts Receivable-~~Delta: 3,455.33

Credit Sales: 10,000
Credit Sales: 3,455.33

Note: Delta account is an account use to capture the exchange different between the base currency and the foreign currency amount.

As at 31 January, you decided to set the month-end exchange rate to 1SGD:0.7400USD. MoneyWorks creates two General Journals for the change of exchange rate automatically when the new exchange rate has entered.

First General Journal dated on 31 January for the change of exchange rate from 1SGD:0.7432USD to 1SGD:0.7400USD. The journal debits S$58.18 to the USD Accounts Receivable-~~Delta account and credit S$58.18 from the Exchange Gain/Loss Unrealised account.

Another General Journal dated 1 February to reverse the backdated rate change of 1SGD:0.7432USD to 1SGD:0.7400USD. So when payment received, the different in an exchange between the invoice and the receipt will post to the exchange gain/loss account. The journal debits S$58.18 to the Exchange Gain/Loss Unrealised account and credit S$58.18 from the USD Accounts Receivable-~~Delta account.

Since you are going to use the new exchange rate of 1SGD:0.7400USD from 1 February (that is, follow the previous month-end exchange rate), you update the exchange rate of 1SGD:0.7400USD as at 1 February. Again, MoneyWorks added two General Journals for the change of rate. One dated 1 February and another dated 1 March to reverse the earlier journal.

The first journal dated on 1 February for the rate change from 1SGD:07432USD to 1SGD:0.7400USD. It debits the USD Accounts Receivable-~~Delta account of S$58.18 and credit S$58.18 from the Exchange Gain/Loss Unrealised account. Since period March has already opened, a reverse journal is automatically added on 1 March to reverse the backdated rate change from 0.7432 to 0.7400. It debits the Exchange Gain/Loss Unrealised account S$58.18 and credit S$58.18 from the USD Accounts Receivable-~~Delta account.

On 20th February, you received payment from the customer for the full settlement of the amount US$10,000. You recorded into the USD Bank at an exchange of 1SGD:0.7400USD and the Singapore Dollars equivalent is S$13,513.31. The receipt:

Debit USD Bank: 10,000
Debit USD Bank-~~Delta: 3,513.51
Debit the Exchange Gain/Loss Unrealised: 58.19

Credit USD Accounts Receivable: 10,000
Credit USD Accounts Receivable-~~Delta: 3,513.51
Credit Exchange Gain/Loss: 58.19

Before the payment received, MoneyWorks has created a reverse journal automatically in the period March due to a change in exchange rate on 1 February. When payment received on 20 February, MoneyWorks automatically add an exchange journal on 20 February (Same date as the payment received) but in the period March to correct the “reverse journal” which posted earlier. The journal:

Debit USD Accounts Receivable-~~Delta: 58.18
(for the unrealised gain of USD58.18)
Debit the Exchange Gain/Loss: 58.18

Credit USD Bank-~~Delta: 58.18
(for the realised loss of USD58.18)
Credit Exchange Gain/Loss Unrealised: 58.18

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