Hi, two questions regarding currency, hope someone can shed new light!
The package automatically makes adjustments for currency differences
1. a company buys in USD and sells Euro's there is a monthly currency gain and loss. Should this be accounted for in Expenses or above GP?
2. A monthly revaluation journal is done for the creditors and debtors, is this still necessary even though the above adjustments are made automatically. Or is this journal necessary for the balances of the remaining debtors and creditors?
3. would you advise to change the currency rate on the system once monthly or fortnightly? Previously the rate was never changed and as a result the company had a big currency loss for the year. Is there any way this can be corrected retrospectively?
Just dealt with a similar challenge. It is a bit of a minefield that takes a lot of research and understanding - I went to see an accountant who know how it all worked and could guide me through it.
Firstly you should only revalue exchange rates for balance sheet items so the balance sheet shows what the value would be if the item was realised on a given date and would create an unrealised loss/gain on the P&L account. I wouldn't necessarily include creditors and debtors on this revaluation as they are short term but it is down to company preference.
Secondly when entering purchases in USD you should enter the the USD value at the date the invoice was raised when the invoice is paid there will be a difference on the USD value which will create a realised gain/loss (shown on the P&L) - the gain or loss doesn't really exist other on paper and you could if preferred apply the same exchange rate to both the invoice and payment depending on the exchange rate applied to the USD paid out. Conversely this works when applying the Euro's when invoicing.
Sorry but it's not an easy answer for a complicated question. I went round in circles for weeks on this one.
It all depends on how you run the package and your bank accounts.
If you only have sterling £ accounts, then you would apply the exchange rate at the date that the sales invoice was raised. When the payment is received into your bank account, it may be up or down on the original amount - this will then need to be adjusted for as a loss or gain on the P&L.
The purchase will always be correct as you will need to pay the exact amount of the invoice.
If you run different currencies on your package, then you amend the rate each time you make a posting, then the software will auotmatically place the gain or loss onto the P&L.
Thank you both for your advice this does help . When you say revalue balance sheet items do you mean revalue Fixed assets ie if the company for instance had property in another country? Cant think what else you would revalue?
I was advised it was things such as loans, share capital as the company I am involved with do not have any property this was not questioned, but I would think it would also relate to this as to realise it today would give it a different value from last year (assuming no growth in value of course).
