Exchange rates and Accounts Receivable

[Long, Martin]

>
>
> If I understand you correctly, the problem is a conceptual one.  You
> want to enter in AI/AR USD "based on today's exchage rate", but that's
> not the way GnuCash treats that money.  You're not actually doing the
> exchange when you create the invoice, because it's not in cash yet.
> It's just A/R, and it's denominated in USD.  Therefore, there's no
> exchange to be done at that point.
>
> When you move the money from one (cash/bank) account to another,
> _then_ you can edit the exchange rate.  At least, that's how I do it.
>
>
Thanks Andrew

I'm not sure I agree with you. According to various articles of legislation
such as SSAP state (I'm not sure what the UK equivalent is, but I've read
that the same applies)

During an accounting period, a company may enter into transactions which
are denominated in a foreign currency. The result of each transaction
should normally be translated into the company's local currency using the
exchange rate in operation on the date on which the transaction occurred
[...].

To, to me, this means that the transaction should be entered into my
"Advertising revenue" account, which is denominated in GBP and does contain
other local sources of ad income, based on the exchange rate at the time it
occurred. This is entered 'through' the trading accounts.

Invoice date:  1 GBP = 1.6 USD

Expense:Advertising Income: Cr £100
GBP*                     Dr £100
USD*                     Cr $160
A/R USD                Dr $160

* currency trading accounts

On payment: 1 GBP = 1.5 USD

A/R USD               Cr: $160
USD*                    Dr: $160
GBP*                    Cr: £106.67
Current account:    Dr: £106.67

and to balance the trading account:

Income: Trading Gains:  Cr: £6.67
GBP*                           Dr: £6.67

Now this accurately reflects what happened. My income was accrued on the
day it was invoiced, at the exchange rate on the day, as it should be my
GAAP. The extra £6.67 was declared as a trading gain, as this was actually
money I made later when the exchange rate shifted. This is actually quite
important. My advertisers normally pay me 60 days after the month end,
which could be well into the next tax year. However, I'm still liable for
the tax on the date the money was actually 'earnt' and at the exchange rate
at the time.

Note, I assume here that the payment is made to me directly in GPB. There
may be an intermediate step such as a Paypal account, or a USD account, but
for simplicity lets say that the advertisers wire it directly to my UK bank
account. The same applies if it goes through a Paypal account.

As you can see... the original invoice was for $160, but the only way I can
enter this, and have the contra-value calculated is to enter it as GBP £100
in Advertising revenue, by that point I've already calculated it myself.

I'll add that I'm not an accountant. I may be totally wrong about the
above, but I though I had got an excellent understanding of how trading
accounts and foreign currency transactions are handled by GnuCash from this
excellent page:
http://www.mathstat.dal.ca/~selinger/accounting/tutorial.html#2

Thanks

Martin