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You can have foreign currency set in accounts such as the bank, accounts receivable and accounts payable. When there is a rate change, MoneyWorks automatically creates two exchange rate journals. One is to revalue the foreign currency balances due to a change in the exchange rate; another is a reverse of the revaluation journal on the following open period.
Below is an example illustrate how does a change in exchange rate affects the account.
Assuming you start tracking the multiple currencies from January 2016. You added the currency with an exchange of 1SGD:0.7432USD. All the open financial period, let's say you have already opened from January to March 2016, will have the exchange rate of 1SGD:0.7432USD set. Any transactions in US Dollar added within these three periods will be using this exchange rate.
On 8th January, you record a Sales Invoice of US$10,000 at an exchange rate of 1SGD:0.7432USD. The Singapore Dollars equivalent amount of this US Dollars invoice is S$13,455.33. The double entry behind this Sales Invoice:
Debit USD Accounts Receivable: 10,000 Debit USD Accounts Receivable-~~Delta: 3,455.33
Credit Sales: 10,000 Credit Sales: 3,455.33
Note: Delta account is an account use to capture the exchange different between the base currency and the foreign currency amount.
As at 31 January, you decided to set the month-end exchange rate to 1SGD:0.7400USD. MoneyWorks creates two General Journals for the change of exchange rate automatically when the new exchange rate has entered.
First General Journal dated on 31 January for the change of exchange rate from 1SGD:0.7432USD to 1SGD:0.7400USD. The journal debits S$58.18 to the USD Accounts Receivable-~~Delta account and credit S$58.18 from the Exchange Gain/Loss Unrealised account.
Another General Journal dated 1 February to reverse the backdated rate change of 1SGD:0.7432USD to 1SGD:0.7400USD. So when payment received, the different in an exchange between the invoice and the receipt will post to the exchange gain/loss account. The journal debits S$58.18 to the Exchange Gain/Loss Unrealised account and credit S$58.18 from the USD Accounts Receivable-~~Delta account.
Since you are going to use the new exchange rate of 1SGD:0.7400USD from 1 February (that is, follow the previous month-end exchange rate), you update the exchange rate of 1SGD:0.7400USD as at 1 February. Again, MoneyWorks added two General Journals for the change of rate. One dated 1 February and another dated 1 March to reverse the earlier journal.
The first journal dated on 1 February for the rate change from 1SGD:07432USD to 1SGD:0.7400USD. It debits the USD Accounts Receivable-~~Delta account of S$58.18 and credit S$58.18 from the Exchange Gain/Loss Unrealised account. Since period March has already opened, a reverse journal is automatically added on 1 March to reverse the backdated rate change from 0.7432 to 0.7400. It debits the Exchange Gain/Loss Unrealised account S$58.18 and credit S$58.18 from the USD Accounts Receivable-~~Delta account.
On 20th February, you received payment from the customer for the full settlement of the amount US$10,000. You recorded into the USD Bank at an exchange of 1SGD:0.7400USD and the Singapore Dollars equivalent is S$13,513.31. The receipt:
Debit USD Bank: 10,000 Debit USD Bank-~~Delta: 3,513.51 Debit the Exchange Gain/Loss Unrealised: 58.19
Credit USD Accounts Receivable: 10,000 Credit USD Accounts Receivable-~~Delta: 3,513.51 Credit Exchange Gain/Loss: 58.19
Before the payment received, MoneyWorks has created a reverse journal automatically in the period March due to a change in exchange rate on 1 February. When payment received on 20 February, MoneyWorks automatically add an exchange journal on 20 February (Same date as the payment received) but in the period March to correct the "reverse journal " which posted earlier. The journal:
Debit USD Accounts Receivable-~~Delta: 58.18
(for the unrealised gain on USD58.18)
Debit the Exchange Gain/Loss: 58.18
Credit USD Bank-~~Delta:58.18
(for the realised loss on USD58.18)
Credit Exchange Gain/Loss Unrealised: 58.18
