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Exchange rate fee in using PayPal for foreign payments

Exchange rate fee in using PayPal for foreign...

Hi All,

I use PayPal to pay a lot of my foreign invoices.

When I log an invoice in my accounting system I use the exchange rate as per XE. com at the invoice date to convert it into British pounds.

I then make the foreign payment through PayPal. They convert the foreign payment into British pounds using their rate.

I therefore have a difference in what I recorded the invoice for in GBP in my accounting system and what it has cost me to make that foreign payment using PayPal. At the moment I just move the difference to Forex movement on the profit and loss.

Is this the correct treatment because I know PayPal charges a 2.5% exchange conversion fee so technically not all the exchange difference is down to the exchange rate movement. Some of the movement is down to the fee PayPal charge to convert the currency.

Thanks!

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11th Jan 2013 18:24

At least two elements here?

At the moment it seems you have the XE.com exchange rate, the PayPal exchange rate and the PayPal exchange rate conversion fee...makes my head ache just thinking about it.

Wouldn't it just be simpler to use the exchange rate that PayPal uses to record the transaction in your accounting system and then record the fee as a bank charge?  

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14th Jan 2013 02:24

I thought about that but I do not think that would be the correct treatment.

To convert foreign invoices to GBP for the VAT purchases box 7, I think a market rate should be used, not a PayPal rate.

Also I cannot find a list of historical exchange rates on the PayPal website so I do not think I could use their rate anyway.

 

 

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14th Jan 2013 18:02

I don't want to sound picky...

...and I can understand the concern, but I thought one had to record the exchange rate that was actually used in a foreign currency transaction?  I know that getting details from PayPal about their charges and rates can be a bit of a faff but doesn't SSAP20 apply?

"In individual financial statements, the general rule of SSAP 20 is that the result of each transaction should be translated into the company's local currency using the exchange rate in operation at the date on which the transaction occurred." 

http://www.frc.org.uk/Our-Work/Codes-Standards/Accounting-and-Reporting-Policy/Standards-in-Issue/SSAP-20-Foreign-currency-translation.aspx

 

 

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