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Foreign Currency Transactions

Foreign currency conversion takes place in a gain (loss) account. If an entity stores equities or liabilities in a foreign currency, those accounts must be adjusted at least monthly for foreign exchange rate.


Example:


Company A has sold a service on receivable for $100,000 CAD on Jan 1. Spot rate is $0.79 CAD to USD.


Jan 1 Entry:


Dr. Account Receivable $79,000 ($100,000 * 0.79)

Cr. Revenue $79,000


At the end of the month spot rate is $0.80 CAD to USD. The following adjustment entry is required:


Jan 31 Entry:


Dr. Accounts Receivable: $1,000 ( ($100,000*0.8)-$79,000)

Cr. Unrealized Gain (Loss) on CAD exchange rate: $1,000


In this particular example, we have recognized revenue right away. Therefore, going forward any gain or loss resulting in the fluctuation of the currency will show up as Other Income (or Other Comprehensive Income under IFRS).