Switch Currency Translation Methods

Before you start

We will use the following example to explain the steps:

• Sample Company Ltd is a multicurrency company. Its functional currency is Canadian dollars. In the fiscal year 2009, Sample Company Ltd used the Realized and Unrealized Gain/Loss currency translation method. The company revalues balances of monetary accounts once a year.
• We assume, for this exercise, that there is only one US customer, and, as of December 31, 2009, their balance in USD is 1,000.00 with CAD equivalent of 1,500.00. Sample Company Ltd also maintains a USD bank account, with a balance in the account of 5,000.00 as of December 31, 2009. The CAD equivalent functional amount is 6750.00.
• Sample Company Ltd wants to switch to the Recognized Gain/Loss currency translation method as of January 1, 2010.

Steps to take in 2009:

1. Open Accounts Receivable to revalue the balances of your accounts receivable. Assume that the exchange rate on December 31, 2009 is 1 USD = 1.4000 CAD.

   Thus, when revaluation is performed in A/R, the following reversing G/L entry will be created on December 31, 2009:

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   Receivables Control	0.00	0.00	0.00	100.00
   Unrealized Exchange Loss	0.00	0.00	100.00	0.00
   [(1.4000 x 1,000) - 1,500 = 100.00]

2. Go to General Ledger and revalue the balance of USD bank accounts, using 1 USD = 1.4000 CAD as the exchange rate for Year/Period 2009-12.

   The G/L revaluation will create the following reversing entry on December 31, 2009:

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   USD Bank	0.00	0.00	250.00	0.00
   Unrealized Exchange Gain	0.00	0.00	0.00	250.00
   [(5,000 x 1.4000) - 6,750 = 250.00]

3. Print the Trial Balance Report.

   It will show the following entries:

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   USD Bank	5,000.00		7,000.00
   Receivables Control	1,000.00		1,400.00
   Unrealized Exchange Gain				250.00
   Unrealized Exchange Loss			100.00

4. Run Create New Year (from General Ledger > G/L Periodic Processing > Create New Year).

Steps to take in 2010:

1. Post the reversing revaluation entries created by the 2009 revaluation:

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   Receivables Control	0.00	0.00	100.00	0.00
   Unrealized Exchange Loss	0.00	0.00	0.00	100.00
   [(1.4000 x 1,000) - 1,500 = -100.00]

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   USD Bank	0.00	0.00	100.00	250.00
   Unrealized Exchange Gain	0.00	0.00	250.00	0.00
   [(5,000 x 1.4000) - 6,750 = 250.00]

2. In Common Services:
   1. Open the Options tab of the Company Profile.
   2. Select Recognized Gain/Loss in the Gain/Loss Accounting Method field.
   3. Click Save.
3. In General Ledger:
   1. In the G/L Accounts form, create new accounts for Recognized Exchange Gain and Loss.
   2. In the Revaluation Codes form, modify existing revaluation codes or create new ones.
   3. Assign the new revaluation codes to the newly created accounts.
4. In Accounts Receivable (Accounts Payable):
   1. Modify existing account sets or create new account sets for the USD customers.
   2. Revalue the balances of your accounts receivable.

      In our example, we assume that the exchange rate on January 31, 2010 is 1 USD = 1.6500 CAD. Thus, when revaluation is performed in Accounts Receivable, the following General Ledger entry will be created on January 31, 2010:

      G/L Account	Source Currency		Functional Currency
      	Debit	Credit	Debit	Credit
      Receivables Control	0.00	0.00	150.00	0.00
      Exchange Gain	0.00	0.00	0.00	150.00
      [(1.6500 - 1.5000) x 1,000 = -150.00]

5. Open General Ledger and revalue the balance of the USD Bank account using 1 USD = 1.6500 CAD as the exchange rate for Year/Period 2010-01.

   The General Ledger revaluation will create the following entry on January 31, 2010:

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   USD Bank	0.00	0.00	1,500.00	0.00
   Exchange Gain	0.00	0.00	0.00	1,500.00
   [(5,000 x 1.650) - 6,750 = -1500.00]

6. Print the Trial Balance report.

   The multicurrency accounts will display the following values for January 31, 2010:

   G/L Account	Source Currency		Functional Currency
   	Debit	Credit	Debit	Credit
   USD Bank	5,000.00		8,250.00
   Receivables Control	1,000.00		1,650.00
   Unrealized Exchange Gain				0.00
   Unrealized Exchange Loss			0.00
   Exchange Gain				1,650.00
   Exchange Loss			0.00
   [(5,000 + 1,000) x 1.6500 - (1,500 + 6,750) = 1,650.00]

Additional information