That old chestnut - multi currency

Timothy Wight tim.wight at kihoe.net
Mon Sep 21 11:14:24 EDT 2009


Ah, but I am a merchant, not a currency trader.  It's an irony that I am 
having to manually use currency trading accounts to meet my needs.

The point is that the gains and losses are not unrealised. 

For example, I have bought goods (or services) on a particular date at 
say $100, and posted them as a stock asset at the local currency value 
of say RM380.  The goods have arrived and hopefully been sold before, at 
a later date, I pay for them -- but my $100 transfer costs me RM400.  I 
have a REALISED loss of RM20, and my accountant would like to see that 
posted in a expense register 'currency losses' (or an income register 
'currency gains') so that it is accounted for tax.

With the manual method, at year end I transfer all outstanding foreign 
A/P balances to a local currency current liability register 'Accrued 
Expenses' (or to a current asset register 'Prepaid Expenses') performing 
exchange calculations at the rate on that day.  By default all currency 
trading accounts will also balance to zero, leaving an amount in my 
local currency trading account.  That amount is local value of my 
currency losses or gains, which I can post to the appropriate income or 
expense and thus '...have it recorded'.

For greatest accuracy I should do this after every exchange transaction 
- a lot of extra work for me but something the application might easily 
do...

To put it bluntly, GnuCash multi-currency use produces double entry 
bookkeeping that doesn't balance (a complete no-no), does not ACCOUNT 
for realised losses or gains in currency transactions, and incorrectly 
REPORTS realised losses or gains as unrealised.

Otherwise, I love it!

Tim

Mike or Penny Novack wrote:
>
>> It doesn't get any further than that with my accountant.  If the trial
>> balance doesn't balance then the accounts are wrong, end of story.  
>> He won't
>> accept them.  Showing him an 'unrealised gains' entry in the Balance 
>> sheet
>> doesn't cut it.  "From where" he says, "account for them!"
>>
>> So I am stuck with manual currency trading accounts as per Peter 
>> Selinger. His proposal may not solve all predicaments but it would 
>> work for me.
>>
>> Other than that it's a great application.
>> Regards
>> Twig
>>
> Curious, that "from where"?
>
> I would ask this accountant a simple question. "If I had done a 
> transaction in some foreign currency on one date but had not yet 
> "brought it home" (had the currency conversion performed at some know 
> rate) how would you want this recorded (namely the fact that TODAY the 
> exchange rate is different) assuming that we were back in the days of 
> pen and ink on paper accounting.
>
> Although I am not an accountant to me the source of the "unrealized 
> gains" (or losses) is obvious, namely the change in exchange rates 
> during the time you had non-zero account balances in some foreign 
> currencies. In effect in addition to your normal (intended) business 
> activities you are perforce doing a bit of trading in foreign 
> currencies. This would be more obvious were the situation were one of 
> gross variation in rates as sometimes happens as in those sad cases 
> where hyperinflation, etc. is so severe that people have to try to use 
> money immediately as in a few days its value relative to goods might 
> be far less, certainly by the end of the month, etc.
>
> In other words, the fact that you  purchase goods on one date (in some 
> foreign currency) and pay for them at some later date (in that 
> currency) IS a source of potential gains and/or losses in currency 
> trading.
>
> Michael
>
>
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