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Split realised and unrealised FX

How to split realised and unrealised FX on bank account

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We are a GBP denominated business and have some sales in CAD.  We have a CAD bank account where we receive money and make payments out of.  Each month we revalue the CAD bank balance to GBP and put an FX adjustment in unrealised FX.  We recevie money and pay money out each month.  Realised FX is then calculated on when the AP and AR invoices are received.  As we are revaluing the bank balance each month close, how do we split out this FX to be realised when we sell CAD to buy GBP?  It cannot be simply the FX rate we convert at vs the last month end rate as the currency has been building up over the past 11 months!?  Would it be a weighted amount.  ie if we had $3M CAD and sold $1M and currently carrying unrealised FX gain of £30k would we take 1/3 * £30k as now realised?

Thanks in advance

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By Wanderer
26th Nov 2021 08:53

Looks like you are overthinking it.
Why do you want to split realised and unrealised?

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By tom123
26th Nov 2021 10:06

We did do exactly that, with CAD balances, but the amounts were much bigger, and we had intercompany balances (in CAD) with our Canadian parent company.

At the level the OP is talking about, I would just revalue to the same place as the realised gains go to.

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By Bob136
26th Nov 2021 12:12

It was for management reporting. Due to some of the large currency swings being unrealised it was to strip out the messy nature in which it can distort the profits management look at.

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By johnt27
26th Nov 2021 11:38

You don't need to split between unrealised and realised FX gains although I realise this may be of interest in the management accounts. To be precise about this you'd need to track all the transactions going through the CAD account to work out the weighted exchange rate. Easier just to do as either you suggested or merge FX reporting.

I should note that most (modern) accounting systems will do these calculations and postings for you automatically (on a daily basis).

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By Bob136
26th Nov 2021 12:09

Thanks Johnt27. I was thinking that we would need to track all the different FX, but was hoping for a quicker solution. Sounds like my logic may stack up.

Agreed on the accounting system. I am currently looking at moving our system next year so will eventually take care of itself hopefully.

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