Exchange Accounting for Accounts Receivable

1. Scenario 1: Month End Accruals to Value Foreign Currency Control Accounts (A/R and Bank):

   This scenario describes the accounting entries resulting from processing Sales Invoices and collecting payments in a foreign currency. In this simplified example, the foreign currency is US$ and the domestic currency is CDN$. These accounting principals are followed:

   • Control accounts for Accounts Receivable-US$ and Bank-US$ are expressed in foreign currency.

   • Balance Sheet accounts also exist for Exchange on A/R and Exchange on Bank.

   • As foreign Invoices are processed, the foreign dollar A/R control account is updated in foreign currency, Sales are updated in domestic equivalent and the difference is posted to the Gain/Loss on Exchange in the P&L section of the Chart of Accounts. Note: The A/R and Gain/Loss on Exchange G/L accounts are assigned in the Bank Code record in Maintain Bank Codes (AR02).

   • Prior to producing month end financial statements, an accrual entry is manually entered to bring the foreign currency Balance Sheet account into domestic dollars at the current exchange rate. The offsetting amount is posted to the Gain/Loss on the Exchange account in the P&L.

2. Scenario 2: Month End Journal Entries to "True Up" Exchange Accounts for A/R and Bank:

   This scenario describes the accounting entries resulting from processing Sales Invoices and collecting payments in a foreign currency. In this simplified example, the foreign currency is US$ and the domestic currency is CDN$. These accounting principles are followed:

   • Control accounts for Accounts Receivable-US$ and Bank-US$ are expressed in foreign currency.

   • Balance Sheet accounts also exist for Exchange on A/R and Exchange on Bank.

   • As foreign Invoices are processes, the foreign dollar A/R control account is updated in foreign currency, Sales are updated in domestic equivalent and the difference is posted to the Exchange on A/R Balance Sheet account. Note: The Accounts Receivable and Exchange on A/R GL accounts are assigned in the Bank Code record in Maintain Bank Codes (AR02).

   • Prior to producing month end financial statements, journal entries are manually entered to "true up" (express at today's exchange rate) the Balance Sheet Exchange accounts. The offsetting amount is posted to the Gain/Loss on Exchange account in the P&L.