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How do foreign exchange companies record turnover?

The whole amount as revenue or just the commission?

Case study

  • Mark has £100,000 and wants to convert it into euros, so he approaches ABC FX. 
  • Mark transfers the £100k to ABC FX, who then buy at institutional rates for EUR 114,000. 
  • ABC FX then transfers EUR 112,000 to Mark's euro account and keeps EUR 2,000 profit.  

I'm assuming there are two possible entries for currency exchange brokers. Which one is correct? 

Entry A: 

  • Payment received. Debit GBP BANK £100,000, Credit pending client exchange £100,000. 
  • Currency exchange. Debit pending client exchange £100,000, Credit GBP bank £100,000. 
  • Currency received. Debit euro bank EUR 114,000, Credit clients payable EUR 112,000, Credit revenue EUR 2,000. 
  • Pay to Mark. Debit clients payable EUR 112,000, Credit euro bank EUR 112,000.

Entry B: 

  • Payment received. Debit GBP BANK £100,000, Credit pending client exchange £100,000.
  • Currency exchange. Debit pending client exchange £100,000, Credit GBP bank £100,000. 
  • Currency received. Debit euro bank EUR 114,000, credit revenue EUR 114,000. 
  • Pay to Mark. Debit Cost of Sales EUR 112,000, credit euo bank EUR 112,000. 
     

So can you record the full amount as revenue or just the commission that you make? 

The reason I ask this is because currency brokers like to boast about how much turnover/revenue they are making. So I am curious to know whether the accounting method is optional, so I can know whether they are as big as they make out. 

Is it optional or is there only one accepted method? 

Look forward to your responses. 

 

 

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By Mr_awol
07th Dec 2017 10:21

1) I have a client who trades as a letting agent.

Every month he banks about £200,000 of tenants' rent. He takes his commission (and any disbursements) and passes the balance on to the landlords (normally quarterly).

Do you think his annual turnover is £2.4m with c £2.1m COS or is it c£300k?

2) I have several clients who are solicitors. One might do the conveyancing for a three bedroom semi for about £650. So the bank/mortgage company/client arranges for around £351k to be transferred into the solicitors account, and then the solicitor passes £350k on to the solicitor acting for the seller of the house.

Is my client's turnover for this transaction £351k with just over £350k COS (inc disbursements) or is it £650?

3) I have a.................

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07th Dec 2017 10:32

Why not have a look at their accounts and see what the policy is?

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