tutorial on multi-currency accounting

[Derek Atkins]

Quoting Peter Selinger <selinger at mathstat.dal.ca>:

> Actually, such accounts represent unrealized (or realized) gains and
> losses, so they are income, not equity. See
> "http://www.mathstat.dal.ca/~selinger/accounting/#4.2.", second
> paragraph.

A single transaction by itself is neither a gain nor a loss.  It's a
POTENTIAL gain or loss, but not by itself..  I guess that's why I'm
so hesitant to embrace this idea.  Here's an example.  I'm traveling
abroad and go to an ATM and pull out ?100 out of my US Bank Account.
(later on I find that this ?100 cost me $157.23).  That's it.  There's
this single transaction.   Do I have a ?100 Income?  I dont think so.
Do I have a ?100 Expense?  I don't think so, either.

This is why I think it's Equity.  I now have an Equity balance of ?100.
Where did this ?100 come from?  Well, it came from the exchange of
$157.23...  But it's neither an income nor an expense.

Now let's say I buy a ?2 candy bar.  That's an expense.  But what if
I go to my friend and sell that candy bar for $5 (he's REALLY hungry!).
See, this can get infinitely complicated.  So let's constrain the problem.

Let's say that I take those leftover ?98 and exchange them for $145.76.
I certainly don't have a loss of $11.43 (because I bought that candy bar).

> I don't know if users would prefer to have them directly under the
> "Income" hierarchy, or as a top-level account. By making their
> location user-definable, one can leave the decision to them. This
> would also allow for multiple trading accounts if desired.

As soon as you say "trading accounts" this again brings up the description
of the old "Currency" accounts which are what you needed to do to trade
from one currency to another.

I'll point out that the CoA never balances, either.  A - L never equals
your Equity in your accounts (until you include Income and Expense, but
most people don't think about that).

Having the reports do some of the heavy lifting is PERFECTLY reasonable.

> Best, -- Peter

-derek

-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       warlord at MIT.EDU                        PGP key available