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3. Cash sale received in EURO bank account

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Your base currency is GBP. Enter the following transactions:

1.Cash sale of EUR 300 received into the Euro bank account from a customer in the Republic of Ireland on 10 January 2020

Assume the following FX rates:

Date

EUR : GBP

01/01/2020

1.20

31/01/2020

1.25

29/02/2020

1.23

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

This needs to be set up before entering any foreign currency transactions.

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 1b: Set up the Euro Bank Account

1.Select Set Up>Accounts>New>All, then scroll down the list of accounts until you get to the Bank section. Then click anywhere in the list of bank accounts and select New.

Step 2: Enter receipt (10/01/2020)

1.Select Transaction>Receipt

2.Complete the fields in the fields in the usual way and select the bank account as the Euro account

This has the following accounting effect:

Date

Debit/Credit

Ledger

Account

EUR

EUR

GBP

GBP

10/01/2020

Debit

Bank (BS)

Euro account

300.00


250.00



Credit

Income (P&L)

Sales


300.00


250.00

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

10/01/2020

Debit

Bank (BS)

Euro account

300.00


240.00



Credit

Income (P&L)

Sales


300.00


250.00  


Debit

Debtors (BS)

Translation differences



10.00


and also generates the following transaction:

Date

Debit/Credit

Ledger

Account

EUR

EUR

GBP

GBP

31/01/2020

Credit

Debtors (BS)

Translation differences

 



10.00


Debit

Expenses (P&L)

Exchange differences



10.00


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

revalues the bank balance at the FX rate at 31/01/2020, i.e. GBP 240.00 (EUR 300.00 / 1.25)

records the difference between the revalued and original amount recorded in GBP of 10.00 (250.00 - 240.00) 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

Bank: Euro account

240.00

Debtors: Translation differences:

0.00

Total BS

240.00

Profit and loss


31/01/2020

GBP

Expenses: Exchange differences

10.00

Income: Sales

(250.00)

Total P&L

240.00

This demonstrates that:

the income from the sale was recorded in the P&L at the FX rate at the time of transaction (300 / 1.20 = 250.00)

the euro bank account was revalued to the FX rate at the end of the period (300 / 1.25 = 240.00)

the difference on revaluing the euro bank account was recorded to the exchange differences account in the P&L (10.00)

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