Tracking realised currency gains and losses

Realised currency gains and losses are tracked differently for sales and purchases than for deposits and withdrawals in AccountEdge Plus. For realised gains or losses on sales and purchases, a posting is automatically made to the Currency Gain/Loss account. However, for realised currency gains and losses on transfers—deposits and withdrawals—you need to make a nominal journal entry to the Currency Gain/Loss account to record the currency gain or loss.

When you activate the multiple-currency feature in AccountEdge Plus, a Currency Gain/Loss account is automatically created.

note : Large foreign currency exposure

If you have a large foreign currency exposure, you may require a more detailed analysis than posting to a single Currency Gain/Loss account provides. In this case, we recommend that you consult your accountant for further advice about managing your foreign currency exposure.

Sales and purchases

At the time a currency gain or loss is realised, that is, a payment is received or made, an automatic posting is made to the Currency Gain/Loss account and to the exchange account for the foreign currency.

The Currency Realised Gain/Loss report lists the currency gains and losses that have been automatically posted through sales and purchases during the month for foreign-currency transactions.

Example

Say you sell goods for €100 at an exchange rate of 0.63 British pounds to the euro. AccountEdgePlus records the sale at £63 and records €100 as owed by the Euro customer. Using AccountEdge Plus’ dual accounting system, €100 is posted to the euro debtors account, £37 to the euro debtors exchange account and £63 to the sales account.

In the following month, the euro customer pays their account by depositing €100 into your bank account, but the exchange rate has changed from 0.63 to 0.60 pounds to the euro. The deposit is valued at £60.

You originally made a sale that at the time was worth £63. When you received payment, it was worth only £60. Therefore, the £3 difference is a realised currency loss, and will be posted to the Debtors Accounts Euro exchange account and to the Currency Gain Loss account.

Transfers

Currency gains and losses that occur through the transfer of funds need to be recorded by a nominal journal entry.

At the end of the month, you can look at the value of your foreign accounts and use the Currency Calculator (from the Help menu at the top of the screen) to calculate their true values in local currency at that time.

You can then create a nominal journal entry where losses are posted as credits to the exchange account with a corresponding debit to your Currency Gain/Loss account. Gains are posted as debits with a corresponding credit to your Currency Gain/Loss account.

Example

Say the original balance in your euro bank account is zero and you then transfer €100 at an exchange rate of 0.63 pounds to it. The €100 is converted to £63, and AccountEdge Plus posts €100 to the Euro bank account and £37 to the Euro Cheque exchange account.

The following week you withdraw that €100 from the bank at an exchange rate of 0.60 pounds to the euro. AccountEdge Plus values the withdrawal at £60. You put €100 into the account that at the time was worth £63. When you withdrew the €100 from the account, it was worth only £60. Therefore, the £3 difference is a realised currency loss.

If you looked at your balance sheet, you would see a zero value for the Euro bank account, but £3 remaining in the Euro exchange account. You need to post the £3 in the exchange account to your Currency Gain/Loss account.