Foreign currency reporting

Melinda Jane Koth

ANZ USD account has been reconciled for a balance of USD$1429.96, when the Accrual Balance Sheet displays the same account has a balance of $14,084.54, which is in AUD. How do I explain to the client the balance discreapancies is it due the Foreign Exchange Gains / Loss's over the life of the account

Michael Macleod

Presumably the transactions have been converted to AUD when processed . You would need to compare the transactions posted to the bank account in AUD against the transactions in the US$ baNk account. Given that the exchange rate has not moved that much overr the year, someone in posting transactions may not have realised, there needs to be a conversion to AUD.

Michael Macleod

Reckon FAQs

Hi Melinda,

The situation you face is created when foreign purchases and sales are settled through a foreign currency bank account.  Each transaction is still recorded with an exchange rate, and the current exchange rate is the most logical to use, even though no foreign exchange transaction has taken place. So for AUD valuing purposes, each transaction is building in an exchange rate transaction that has never happened in real life.  Over time, the AUD value of your bank account can build up a big discrepancy to the actual foreign currency value, as reports are built up from the transaction level and take into consideration the exchange rates used.

You get rid of this discrepancy through the Home Currency Adjustment which allows you to change the AUD value of the foreign bank account without changing its foreign currency value.  The difference is written off to the Exchange Rate gains/losses account.  In effect the transaction forces you to realise the shift in exchange rate from the time you funded the foreign bank account until the present.  

You can avoid the major part of this discrepancy by using the same exchange rate on both the invoice and its payment, leaving any "home currency" discrepancies due to transfers from an AUD funding source and the foreign bank account.  

Hope this explains it.  

regards,
John

Kevin Whiting_8640861

My main currency is AUD (~10 bank accounts) and I have one USD a/c with 10 -20 txns per month.  I treat the USD values as AUD within Reckon (haven't turned multi-currency on) so that the a/c always reconciles with the bank.  I also enter my USD txns into a spreadsheet (yes, duplication) so I can record holding gains/losses and conversion amounts (for each txn, using the daily rate published the RBA.

Every month, I journal the variances into Reckon so that my sales and expenses are converted to AUD, holding gains/losses are entered into the P&L and the unrealised Fx gains/losses are reported in the B/S ("unrealised" because the USD have not yet been converted to AUD).

This approach gives the business confidence in the financial reports as well as visibility of the benefits/costs of holding foreign currency.  Although the business has not decided to use hedging facilities, the unrealised gains/losses in the B/S keeps that option in discussion.

Hope this helps you provide better service to your client.

Regards,

Kevin