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RE: Playing Accountant

From: Todd Boyle
Subject: RE: Playing Accountant
Date: Tue, 20 Mar 2001 08:54:41 -0800

The functional currency of a company is the currency they report
in for tax and GAAP purposes.  Companies don't have a lot of
options how to report.  This rule applies in IAS standards as
well as US GAAP.

A gain or loss is recorded on the books in the functional curr.
when the value of a payable or recievable denominated in a
foreign currency is different from its original value in the
func. currency i.e. when rates have changed.

My understanding is it's fairly universal to record transactions
in the foreign currencies at both currency values, e.g. a U.K.
company will record its sale in Dm both in the foreign Dm amount
and the UK amount at time of sale.  Then when it's liquidated,
likewise, the two currency amounts are booked.  See the OMG GL
for example or OAG schema.  They have two amount fields.  Nobody
is storing rates in their GL are they?  I only have experienced
a small number of multicurr. GLs, in any depth to understand their
data storage,

--playing developer

Boris Kortiak said,
Derek said,
But then, you have to save the exchange rate when the operation (let's
say a selling of goods) was done, and the exchange rate when the rate
difference was taken into the accounts.

Seems a little askew to me (not an accountant).  Wouldn't you want to know
the conversion factors at the time the currency was converted or at the time
of reporting.

For example: on 2001/01/01 We sell from inventory 100 widgets at 10 elbur
each.  On 2001/01/05 we buy 100 widgets at 5 elbur each.  On 2001/01/25 we
send to our main office half our profit of 500 elbur.  The main office
receives the 250 elbur as 10 rollads, exchange rate of 25 elbur/rollad.  We
keep 250 elbur in our cash account.  On 2001/01/31 we produce our month end
reports using local currency for us.  We send the data to the main office
which uses the current conversion rate of 20 elbur/rollad to come up with
their month end reports.

In this scenario, it would seem to me that the only time the exchange rate
is of import is when money moves across borders or for the purposes of
consolidated reporting.  The inflation rate is always important in reporting
to determine whether each part of the company is internally profitable, such
as during the purchase and sale of goods.

Since the goods can always be stated as having been bought or sold in the
local currency at the time of the transaction, I'm not sure I understand how
the exchange rate affects these transactions.  On the other hand if the
goods are imported, where one purchases the goods with foreign currency,
then I can see the need for tracking the exchange rate in the case of that

So what do you mean by, " have to save the exchange rate when the
operation (let's say a selling of goods) was done..."?

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