If a client invoices in foreign currency for goods shipped at a later date what rate should be used for revenue recognition.
e.g. a client invoices $100,000 at $1.5494 (£64,541) on 01/09 for goods to be shipped on 01/11, he receives $100,000 on 01/10 a $1.6163 (£61,870) giving him a recognisable loss on the debtor of £2,671.
If the rate at 01/11 is $1.6033 should the revenue in the accounts be £62,371 giving a gain of £2,170 or left at £64,541 with no further exchange gain/loss.
Replies (3)
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The end result is the same of course but it has to be simpler to use the exchange rate on the date the invoice is raised.
I hope the below helps!
Use the spot exchange rate on the date of sale/transaction date (not delivery): Cr sales, Dr A.Receivable
When payment is made, use the spot exchange rate on the settlement date: Cr A.Receivables, Dr bank.
If the exchange rates are different than there will be an FX gain or loss; Dr or Cr A.Receivables and send the other side to the P&L
Agreed. Use spot rate at
Agreed. Use spot rate at date of invoice, as I said. That is in fact the only decision required as everything else follows.