• From: Canada
  • Registered: 06/04/2008
  • Posts: 72

Topic: Currency Exchange Problems

Not sure if this applies for others, but I think there should be a mandatory account for gain/loss on currency exchange to take the difference of exchange between the time the invoice was posted and the time of payment (cause the exchanges could be different at the those two periods).

Here's my scenario:

If I had a supplier invoice in USD posted at a certain exchange, it converts it to the home currency and then posts it to the payable account. Let's say the amount was 100 and conversion was 1.50. So the Payables would be credited 150

Right now 150 is sitting in payables

A month down the road, I decide to pay it. The invoice was in USD and i'm going to pay with my USD bank account. I would pay the 100 in USD as stated on the invoice.

The problem is... FA converts it to the home currency in accordance to the exchange rate for that date no matter what out of the payables.  Let's say in the case, the exchange rate for the day of payment was 1.40. So the payment would debit payables 140.

Right now payables shows 10. This 10 should be 'somewhere' not sitting in payables. In my old system, this gets put into a gain/loss currency exchange account.

I think with FA current design, the only way for it to know when to take this difference is at the allocation level somehow

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  • joe
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  • Registered: 03/15/2007
  • Posts: 5,085

Re: Currency Exchange Problems

Yes, you are right. And fortunately we have these default accounts in the company table, exchange_diff_act and purchase_exchange_diff_act. We have never been using these. We could use the first as the gain and the second as loss.
FA has never implemented these routines and I have been aware of it. And you are right, the best place to resolve the gain/loss of exchange rates is when the allocation is fully done. Then we are able to calculate the currency rate when the invoice was created and the rate from the payment date when we allocate. The difference could then be posted in the GL. Involving AR/AP account and gain/loss exchange account. Then it should even out in the long run, right?
We can add the two default accont listboxes in the System and General GL Setup. And we don't need to change the database structure. What do you say?

/Joe
BTW. Maybe it is enough with one account, called Exchange Variation for both the gain/loss.

  • joe
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  • Registered: 03/15/2007
  • Posts: 5,085

Re: Currency Exchange Problems

The problem with the exchange variation has now been solved. The CVS repository is updated. Look in the CHANGELOG.txt file which files are affected. The variations on the various allocations are added to the Payment GL transactions. This way it is easy to see where they come from, and they also have a Sales/Purchase invoice reference in the memo field.

/Joe

  • From: Canada
  • Registered: 06/04/2008
  • Posts: 72

Re: Currency Exchange Problems

Looks good so far Joe!

5 Reply by t2webby (edited by t2webby 10/24/2008 07:24:28 pm)

  • From: Canada
  • Registered: 06/04/2008
  • Posts: 72

Re: Currency Exchange Problems

Hi Joe, sorry to bring this back up again. Everything works fine except for let's say the date of the invoice and the date of payment was the same day. I know theoritically checking to see if it the invoice date is different than the payment date is different before dumping the difference of exchange variance to the gain/loss account, but I think it should also account for same day transactions as well, even though the exchange rate for the same day is usually the same, I think for flexibility for the way some business does their accounting.

For example for me, we pay USD from our USD account at par always and record the gain/loss on the difference of the exchange rate when we create the invoice to what we pay.

So the way we handle it using FA is that we create a supplier invoice using the exchange rate for that day and post it. So let's say the exchange was 1.50. The supplier invoice for USD for 1000 will be posted as 1500 to payables, etc.
So now we have a scenario where we want to pay it right away on the same day, so we would go to the exchange rate option in Banking / GL and change the days exchange rate to 1.000 and then go back to the supplier payment and choose our USD banking to pay a USD supplier, and pay 1000. What should happen in this case is that the extra 500 should be debited from payables and 500 should be credited to gain/loss account so that payables is accurate and that we have recorded and accounted for the exchange variance as well.

I've posted this on Mantis as well

  • joe
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  • Registered: 03/15/2007
  • Posts: 5,085

Re: Currency Exchange Problems

We only have the possibility to record one currency rate a day.
The variance is calculated when the payment allocation is done. At the moment I can't see how we can come closer on this.

/Joe