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Home currency adjustment query

Should a home currency adjustment be reversed?

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Morning all, 

I have a question about home currency adjustments.

I understand the difference between realised gains/losses (for example the payment of a foreign currency invoice and receipt of those funds into a bank account) and unrealised gains/losses (for example accounts payable) 

I also understand the principle of calculating a home currency adjustment to revalue the foreign balances. 

My question is when calculating a home currency adjustment, should that adjustment be revesed at the start of the next period? 

Taking a very simple example:

I receive a payment for a $100 invoice.  When the invoice was sent to the customer, the GBP equivalent at 0.8 was £80. 

At the end of the period, the exchange rate has shifted to 0.9, and the GBP equivalent of that A/R is now £90 and an unrealised exchange gain at the end of the period of £10 (£90-£80).

When the invoice was paid, the exchange rate had shifted to 0.95, and the GBP equivalent received is now £95 and a realised exchange gain at the time of payment of £15 ($95-£80)  

Both the £10 unrealised gain at the end of the period and the £15 realised gain when the invoice is paid are recorded  in my P&L - a total gain of £25.

It would seem logical that the period end adjustment should be reversed, so that when the invoice is paid, only the gain of £15 is recognised.  However nowhere can I find any advice about whether home currency adjustments should be reversed?

Thanks for any help or advice!     Incidentally, we're using Quickbooks Desktop






Replies (2)

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By tom123
13th Oct 2021 09:13

I can't speak about your specific software - but if you have proper multi currency software then you would not get double counting.

You would get a gain on revaluation, and then a subsequent gain or loss when the invoice was paid.

With my previous software, all these gains went to the same code - but you can probably configure them to go to separate places.

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By thestudyman
15th Oct 2021 13:27

From software I worked with, unrealised gains and losses (for cash, debtors and creditors denonimated in foreign currency) are recognised monthly, and then reversed the next month. So this seems quite logical what you are following.

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