[GNC] Exchange rate fluctuation changes historic amounts in P&L and BS

[G R Hewitt]

Fred, thank you for your reply.

I'm afraid that I don't quite follow the logic of your explanation.

To me, as far as I am aware, the P&L is, basically, 'How much in' minus
'How much out' equals a profit or a loss.

A finalised transaction, surely, is set in stone - in this case 'Wood' at
€150 cost me £132.27 on Thursday and was recorded as that in the journals.
Come Monday, if the rate changes so that wood bought on the Monday now
costs £128 does not mean I over-paid by £4.27. The price was correct at the
time and now has changed, that is all. I have not gained or lost anything
at all. I might think 'Hmm pity I didn't buy it today', but that is
hindsight not accounting.

Where I taking the figures from 'pen and ink' journals, the £132.27 and
€150 would be recorded in the P&L as written in the journals. I can't see
that I would hurry to find out the exchange rate and write £128 instead of
£132.27 and then make a journal entry for £4.27 loss to balance the book.
And that is just one entry, what if it were hundreds?

If the P&L does not record the actual amounts, how can you ever come to
rely on it. Suppose you had hundreds of items you could be £1000's of
pounds out one way or the other if the rate changed on Monday and again on
Tuesday, how would you ever know what your profit or loss actually was?

When I was using Sage, the rate on the day was the rate recorded, it never
changed if the following week when something else was purchased a different
rate was applied.

Apart from which, I always thought the Balance sheet is what was used to
(re)valuate and this would support your reasoning - If my house was
recorded as an asset of €250,000 and became €275,000 due to a rate change
I'd be most please and may sell it; but if the revaluation showed it as
€195,000 then I would not be so inclined.

On Sun, 30 Jun 2024 at 12:27, Fred Bone <Fred at mandfb.me.uk> wrote:

> On 29 June 2024 at 22:05, G R Hewitt said:
>
> > Hello Everyone,
> >
> > Basics:
> > GnuCash 5.6; MacOS High Sierra 10.13.6
> > Using Sterling as the base currency and Euros.
> >
> > The problem:
> > A few days ago I bought something in euros (€150) and paid for it in
> > sterling (£132.27) and the GnuCash system worked out that the rate was
> > 0.8818. In the P&L the item was properly shown as £132.27. The card
> > account payment showed £132.27 and the euro expense account showed
> > €150.00. All well and good.
> >
> > I bought something else a few days later in the same manner as above, but
> > the exchange rate had changed, all well and good too - card account and
> > expense account transactions were correct.
> >
> > On running the P&L I noted that the £132.27 of the first transaction
> > above was now less at around £128 and some pence instead of the expected
> > £132.27. I checked the card account and it was still at £132.27 and the
> > euro account was still at €150.
> >
> > Why is this and is there a way to have the correct figures shown in the
> > P&L without them jumping up and down as the rate changes.
>
> Why? Because the P&L is a (re-)valuation at a specific date (e.g.
> "today") and there's been an unrealised loss on your asset - the €150 is
> now worth only £128+ whereas you paid £132.27 for it, and you haven't
> accounted for this. (Of course, if the Euro subsequently rises enough
> against sterling this might even be reversed and become a gain.)
>
> Consider what happens if what you bought was actual euros (such as in
> preparation for a trip to France). They cost you £132+. If you bought
> them today instead, they'd cost you £128+. You made a £4(+-) loss by
> buying too soon. That's what the P&L is telling you.
>
> The figures ARE correct, at least insofar as you have informed Gnucash.
>
>
>
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