Determining the effects of exchange rates on your business
Multicurrency Overview > What is Multicurrency? > Determining the effects of exchange rates on your businessPeriodically, you'll want to determine the effect changes in exchange rates are having on your business. Even if you make no changes to an unpaid foreign-currency transaction, its value will be affected when exchange rates change. For example, if the U.S. dollar is valued at a higher level at the end of the month than it was when you made your sale or purchase overseas, you'll lose some money on your sales, but make money on purchases. On the other hand, if the U.S. dollar is falling in value, sales made earlier in another currency will be worth more in U.S. dollars, but your purchases will cost you more.
Businesspeople generally are concerned with both the potential effect of exchange rates on transactions that haven't been completed yet and the actual effect on them once they've been closed. Read the following sections to learn more about these issues.
If you want to understand the potential effect the exchange rate has on a multicurrency transaction, you need to determine the unrealized gain or loss for the transaction. Unrealized gain or loss affects only open (unpaid) transactions; it reflects the money you'd make or lose by either receiving payment for a sale or making payment on a debt using the current exchange rate.
Businesses typically calculate this amount for all their open transactions at the end of each accounting period and record a General Journal transaction to account for this potential income or expense. Unrealized gains typically are recorded using an income account, such as "Unrealized Currency Gain/Loss," along with the exchange accounts for your foreign-currency accounts. We recommend that you consult your accountant to determine whether your business needs to track unrealized gains and losses, and if you do, the most appropriate way for you to do so.
To determine the unrealized gain or loss for a particular accounting period, print the MYOB AccountEdge Currency - Unrealized Gain/Loss report. This report shows the original and current value of your open transactions in U.S. dollars, along with the total gain or loss as of the date you've selected.
You can learn more about unrealized gains and losses by reading Assigning accounts to foreign currencies.
Once a transaction is closed-meaning it's been paid in full-any unrealized gain or loss is considered realized. It now has an actual effect on your business's bottom line. Realized amounts are automatically recorded in an income account created specifically for tracking currency gains and losses, along with the exchange accounts associated with your foreign-currency accounts. In MYOB AccountEdge, the income account used for realized gains and losses is created for you automatically when you set up Multicurrency. Its name, appropriately, is "Currency Gain/Loss."
Multicurrency Overview - Determining effects of exchange rates