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1. Supplier invoice in EURO & payment in EURO from GBP bank account

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Your base currency is GBP. Enter the following transactions:

1.Supplier invoice for EUR 500 received from a French supplier, Jean-Claude on 5 January 2020 for consultancy fees

2.Payment of the above invoice for EUR 500 made from the GBP current account on 4 February 2020 (For a similar example from a Euro bank account, please refer to 2. Supplier invoice in EURO & payment in EURO from EURO bank account)

Assume the following FX rates:

Date

EUR : GBP

01/01/2020

1.20

31/01/2020

1.25

04/02/2020

1.27 (bank rate used for payment)

Also assume the business is in its first year of trading which commenced on 1 January 2020, and there are no other transactions. Ignore VAT for the purpose of the example. The procedure below should be followed strictly in order.

Step 1: Set up initial FX rate for Euro (01/01/2020)

1.Select Set up>Currencies, Departments and Lists>Currencies>New

2.Complete the fields as follows: Name: Euro; Abbreviation: €; Rate to base currency: 1.20

Step 2: Enter foreign supplier invoice (05/01/2020)

1.Select Transaction>Purchase Invoice

2.Complete the fields in the invoice in the usual way but select the currency as Euro

3.Note that the currency selected when entering the first transaction for a supplier determines the currency for all further transactions for that supplier.

This has the following accounting effect:

Date

Debit/Credit

Ledger

Account

EUR

EUR

GBP

GBP

05/01/2020

Debit

Expenses (P&L)

Consultancy Fees

500.00


416.67



Credit

Suppliers (BS)

Jean-Claude


500.00


416.67

Step 3: Update FX rate/revaluation for month-end (31/01/2020)

1.Select Set up>Currencies, Departments and Lists>Revalue currencies

2.Enter 1.25 under New rate

This automatically alters the transaction from Step 2. above to:

Date

Debit/Credit

Ledger

Account

EUR

EUR

GBP

GBP

05/01/2020

Debit

Expenses (P&L)

Consultancy Fees

500.00


416.67



Credit

Suppliers (BS)

Jean-Claude


500.00


400.00  


Credit

Debtors (BS)

Translation differences




16.67

and also generates the following transaction:

Date

Debit/Credit

Ledger

Account

EUR

EUR

GBP

GBP

31/01/2020

Debit

Debtors (BS)

Translation differences

 


16.67



Credit

Expenses (P&L)

Exchange differences




16.67

The combination of the last two transactions has the following effects:

revalues the supplier balance at the FX rate at 31/01/2020, i.e. GBP 400.00 (EUR 500.00 / 1.25)

records the difference between the revalued and original amount recorded in GBP of 16.67 (416.67 - 400.00) to the exchange differences account in the profit and loss

This gives rise to the following balances at the end of the month:        

Balance Sheet


31/01/2020

GBP

Suppliers: Jean Claude

(400.00)

Debtors: Translation differences:

0.00

Total BS

(400.00)

Profit and loss


31/01/2020

GBP

Consultancy Fees

416.67

Exchange differences

(16.67)

Total P&L

400.00

This demonstrates that:

the expense for consultancy fees was recorded in the P&L at the FX rate at the time of transaction (500 / 1.20 = 416.67)

the supplier balance was revalued to the FX rate at the end of the period (500 / 1.25 = 400)

the difference on revaluing the supplier liability was recorded to the exchange differences account in the P&L (16.67)

Therefore this meets the objectives of foreign currency accounting as outlined in the Objectives section.

Step 4: Enter payment (04/02/2020)

1.Click on the SU button in the main toolbar and select the supplier

2.Select the invoice entered above and click on PAY

3.Enter the amount in GBP at which the Euro payment was translated by the bank, in the Bank Amount field; this is 500 / 1.27 = 393.71

This has the following accounting effect:

Date

Dr/Cr

Ledger

Account

EUR

EUR

GBP

GBP

04/02/2020

Debit

Suppliers (BS)

Jean-Claude

500.00


400.00



Credit

Bank (BS)

GBP current account


500.00


393.71


Credit

Expenses (P&L)

Exchange differences




6.29

The difference between the current supplier balance and the payment in GBP (400 - 393.71 = 6.29) is recorded as an FX difference in the profit and loss.

This gives rise to the following balances at this point in time:        

Balance Sheet


04/02/2020

GBP

Suppliers: Jean-Claude

0.00

Debtors: Translation differences:

0.00

Bank: GBP current account

(393.71)

Total BS

(393.71)

Profit and loss


04/02/2020

GBP

Expenses: Consultancy Fees

416.67

Expenses: Exchange differences

(16.67)

Expenses: Exchange differences

(6.29)

Total P&L

393.71