Good morning all, I have recently started doing the bookkeeping for a company that has two assets in particular that are causing me problems. One asset is in EUR, the other is USD. Both assets share a common supplier who will only invoice in EUR or GBP. All payments are subsequently made in EUR or GBP.
When adding the invoices relating to the USD asset, I convert them to USD to add them to the ledger, however, these were paid in EUR or GBP, so how do I pay them off on the USD account without throwing the bank account balances out? The obvious solution would be to physically convert the currency from USD to EUR/GBP, and account for any currency adjustments but the business owners do not want to do this because of the charges incurred, so it now looks like I have outstanding dollar invoices on the USD asset, when these have in fact been settled.
Any help anyone could offer would be gratefully received as I am new to this way of working and hate the accounts looking incorrect.
I am assuming that the client's accounting records are maintained in £ Sterling.
Whenever, you receive an invoice in any foreign currency you would post the sterling value of the invoice using that day's exchange rate.
Whenever, you make a payment in any foreign currency you would post the sterling value of the invoice using that day's exchange rate.
On the supplier account, you would net off the invoice against the payment and any difference would be written off to the P&L under 'Exchange Rate Differences'. At the year end, if there are any outstanding balances, you would use re-calculate the sterling value using the exchange rate on the balance sheet and the difference written off to 'Exchange Rate Differences'.
With regards to a foreign currency bank account, at the year you would convert foreign currency balance to sterling using the balance sheet exchange rate and write off any difference to 'Exchange Rate Differences'.
