Accounting & Bookkeeping & Small Business Forum

[ang31]

Hello,

How do I account for currency losses? Losses = business expense so dr currency gains/losses account and cr which account?

Many thanks

[RobJ]

ang31 wrote: Hello,

How do I account for currency losses? Losses = business expense so dr currency gains/losses account and cr which account?

Many thanks
What currencies do you do business in? What is your primary currency?

Rob

[Ingmar]

That all depends on the type of company we are talking about.

If you are making money by selling products overseas, and maintain bankaccountants in foreign currency's, then the profit/loss of the currency would best be qualified as "other results" or something like that.

For instance:
Gross product A 50
Gross Product B 50
Gross Product C 50
Total gross 150

Costs product A 30
Costs product B 30
Costs product C 30
Total costs 90

Margin 60

Result exchange rates 20 -/-

Gross income before TAX 40



If your company has bankaccounts in foreign currencies, with the meaning on making money through the exchange rates, then the story changes. Then the profits/losses would be qualified as a base income/loss for the company.

For instance:
Gross product A 50
Gross Product B 50
Gross Product C 50
Exchange Rates 20 -/-
Total gross 130

Costs product A 30
Costs product B 30
Costs product C 30
Total costs 90

Margin 40


Gross income before TAX 40


As we can see, both ways will lead to the same result, its just a little bit different what the gross margin comes out to.

[RobJ]

ang31 wrote: How do I account for currency losses? Losses = business expense so dr currency gains/losses account and cr which account?
Here's one example. For the sake of this example, we'll assume that your primary currency is the U.S. dollar ($). You purchase 500 cases of bottles from a bottle manufacturer in Great Britain for a total cost of $10,000. If the transaction is completed in U.S. dollars, no adjustment is necessary.

<DR> $10,000 COGS
<CR> $10,000 Accounts Payable

However, if the transaction is completed in "pounds" (£) and the cost is £5,500, you will need to get the currency exchange rate for the day the order was placed to determine the cost in U.S. dollars. Let's say $1 = £0.53 on the date of purchase, then the transaction would look like this (£5,500 / £0.53 = $10,377):

<DR> $10,377 COGS
<CR> $10,377 Accounts Payable

When the invoice is paid, you get the exchange rate on that day to convert your company's U.S. dollars into pounds to pay the invoice. Let's say on the day of payment, the exchange rate is $1 = £0.52. The transaction would look like this (5,500 pounds / 0.52 = $10,577):

<DR> $10,377 Accounts Payable
<DR> $200 Currency Gains/Losses
<CR> $10,577 Cash/Checking

On the date of purchase, £5,500 was equal to $10,377. On the day of payment, £5,500 was equal to $10,577 costing the company an extra $200.

I hope that helps.

Rob

[ang31]

Hi to both of you - RobJ and Ingmar.

I was on holiday so just received your responses. Many thanks indeed for these. I will work through them both now but many thanks.

Angela