I'm doing some bookkeeping where a lot of sales have been made by PayPal. Some of these are in dollars. The business is a UK company and my understanding is that the transactions are entered in the books as GB pounds (after being converted).
The problem I have is how to decide which conversion rate to use and do I apply it for the whole year? I know believe PayPal does convert at the time but I don't have this information.
Is this a Cash Sales business or are Sales made to Account Customers? If it is Cash Sales that you are talking about then yes , enter the amounts in sterling after converting at the prevailing exchange rate at the point of sale. I use the following website;
to obtain historic exchange rates but there's sure to be many more sites.
However if you are talking about Account customer sales then there's two processes involved. Firstly, enter the invoice amount in sterling, again using the prevailing exchange rate at point of sale. Then, when payment is received, enter the amount of the payment in sterling, at the prevailing exchange rate on the day that the invoice is actually paid. Any difference between the two amounts should be posted to the Exchange Rate Variance expense account.
Think I'm right, I'm sure someone will let me know if not!
The sales are cash in that they are made through PayPal. It seems that PayPal uses a rate of exchange for each transaction but to find them all and convert them would be a considerable amount of work. The PayPal rate seems lower than elsewhere though.
I'm intending to use an average rate - adjusted per quarter - to convert the transactions to pounds.
If there are a lot of transactions, I would use a monthly average exchange rate. I've done a few jobs which involved ebay & paypal, and you can't reconcile every single transaction.
Like Tim said, place the difference into an exchange rate difference account.
I've taken a monthly average and then averaged this quarterly.
PayPal charges a levy on the rate. I've checked a few and the PP rate does appear about 2.5% (their conversion fee) lower. I have therefore deducted 2.5% from the normal historic rates. Comes out close enough!
