How to manage Production/Manufacturing/Build Assembly Process/ Create Deals in Quick Books

How to account for Foreign Currency Transactions?

How to Enable Multicurrency Feature in Quick books (QB 12) 2012

Accounting of Exchange Gain/Loss

Customers, Suppliers, Banks having Foreign Currency

This blog is about to understand foreign currency transactions and how can we enable it in Quick Books 12. How can we assign currency to a customer, supplier, and bank other than foreign currency? Let’s have a basic overview of it and how accounting is automated in Quick books Enterprise Solution 12.0.

Basic Terms to Understand this Concept:

Exchange Difference:

It is the difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

Exchange Rate:

It is the ratio of exchange for two currencies.

Fair Value:

It is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Foreign Currency:

Currency other than the functional currency of the entity.

Functional Currency:

It is the currency of the primary economic environment in which the entity operates.

Presentation Currency:

It is the currency in which the financial statements are presented.

Closing Rate:

It is the spot exchange rate at the end of the reporting period.

Spot Exchange Rate:

It is the exchange rate for immediate delivery.

How to Choose Currency whilst setting up new Company

In quick books and any other Accounting and ERP Solution, you must choose functional currency for the company that will never be changeable after its selection. You do it while setup a new company database. All transactions will be reported in the same currency in financial statements. But you can get ledgers of customers, Suppliers etc. in foreign currency as well.

In Quick books 12.0 you can choose currency in preferences and there in Multiple currency section. Follow the navigation:

Go to à Edit Tab à Preferences à Company Preferences

Some default options will be there, if your desired currency is not available in list, you can find your home currency by activating the relevant one from dropdown. Search the currency and activate to select the same.

How to select foreign Currency for Customers & Suppliers?

I shall guide here, how you can select foreign currency with customer while creating a new customer, the procedure for supplier will be same. You must note this thing that once you have selected any currency with customer or supplier you cannot change if after having a single transaction against this customer/supplier. You can change it only when you have not recorded any transaction against these customers/suppliers. A new account with post fix of this currency will automatically be created in chart of account of “Account Receivable” type to post foreign currency transactions.

Foreign Currency Transactions Recording & Exchange Gain/Loss Accounting

On selecting such foreign customer/supplier on any input form like Sale Invoice, Payment etc. some additional fields for exchange rate, foreign currency will enable to put required information and here you can see on screen transaction amount both in local and foreign currency after giving exchange rate of that specific day. Exchange Gain/Loss will be calculated automatically when you put exchange rate on “Sale Invoice” and “Customer Payment” forms, and these exchange rates are different. This exchange Gain/Loss will be posted in Exchange Gain/Loss account, created in chart of account.

Reporting

You can get reports of customers/suppliers in both foreign as well as in local currency of entity. By default, all reports will be displayed in Local/foreign currency. You have to customize report to enable foreign currency and amount columns, in this way you can have both amount columns on single report.

Customer Payment Transaction Recording and Exchange Rate

After selecting foreign customer, put exchnage rate as guided in screen shot on the day of payment. Rest leave on QB system to calculate and record respective accounting entry for exchange gain/loss.

Please note here the process is similar for supplier also same. Do record a “Bill” and then “Pay Bill” with exchange rates on respective document and transaction type day. Rest will be managed by the system.

Currency can only be changed from supplier account until you record any transaction. Once selected can never be changed.

See Screenshot for Customer Payment

Foreign Currency Bank Accounts

An entity can have its bank accounts in multiple currencies and wants to know balance in foreign currency also. You can create any bank with any currency while creating new one. It goes the same way as customers/Suppliers’ mechanism of creation. Consider these points while creating new bank and using any bank in any transaction of customer/supplier.

§  Currency with bank account cannot be changed after posting any transaction with that bank.

§  When you select foreign currency bank, new fields for exchange rate will enable

§  Select exchange rate at the time of transaction recording. (Ratio of local & Foreign CU amount)

Thank You!