Let’s say I have received a EUR invoice from a supplier. At the moment I’m entering this as a New Purchase. I don’t enter anything in the Payment Details section (because it’s not paid yet).
Then a few days later a payment to the supplier is made automatically from my GBP bank account, and this appears (through the automatic bank feed) in the corresponding account in QF.
Now I want to tag this GBP amount as a “payment to a supplier”… I choose “Match to a different currency invoice” and select EUR… the invoice I created earlier is now found… and I then click “Click to Pay”.
Two issues I’ve found with this:
(1) the “Payment Method” ends up wrong this way (I don’t seem to be given the choice so far)… so I have to go into the Purchase record, then click through to the Payment itself… and change Payment Method to “Debit Card”. Is there a better way?
(2) currency exchange rates… at what point do I enter the actual exchange rate used for the payment (this shows on the bank transaction)? I don’t seem to have been given the option to specify this yet (and when I created the invoice, I didn’t know what exchange rate would be used).
Regarding exchange rate (the main topic of this post)… maybe I’ve missed the point about how this is accounted for… maybe I shouldn’t be entering the actual exchange rate used for the payment? I have read this post from @QFMathew, which suggests that the exchange rate is captured at the invoice date and the payment date… and the difference is put down as a currency gain/loss?
So should I not be changing exchange rates manually, just relying on the feed from xe.com on the relevant dates?
If it’s better to manually add the exchange rate used for the payment… the problem is that I don’t seem to be presented with an option for setting the exchange rate when tagging the bank entry as a payment of the invoice… and the exchange rate field on the purchase is not editable afterwards, so I don’t see how I could specify it manually anyway?
For my first attempt at this, I managed to set the exchange rate on the Purchase and Payment to be exactly the same as the actual exchange rate (think I might have entered this manually on the Purchase before tagging the bank entry)… hence the “currency variation” is exactly zero despite the invoice date and payment date being a few days apart… I suppose that this isn’t strictly correct?
If you’re tagging the payment to an invoice in point 2, theres no need to give an exchange rate because you have already given it the eur and gbp values?
This is only for your own records, it has no bearing on anything on the accounting side so it makes no difference if you just leave every payment as “bank transfer”.
Regarding exchange rates, what happens is
when you create a purchase in EUR the lines are converted to GBP at the mid market exchange rate for the purchase date, taken from XE, and it’s those GBP values that go on your P&L. The matching nominal credit entry for the calculated GBP total goes to the creditors control account
when you make payment from a GBP account you’re specifying the payment exchange rate implicitly, based on the exact GBP amount you paid and how many EUR of purchase you’re paying off. Again the matching GBP amount goes as a debit on the creditors control account.
any difference between the purchase GBP value and the payment GBP value is automatically journaled between the creditors control account and the “currency charges” nominal, such that the credit from the purchase, debit from the payment, and adjustment from the journal balance out to zero. This difference represents the gain (if payment was less than purchase) or loss (vice versa)
OK. Shame there isn’t an option, when doing the tagging, to set this, or at least it would be good if there was a default for each supplier.
And thanks so much for the explanations about the currency exchange rates. I hadn’t appreciated that the P&L would be based on the GBP value at the invoice date rather than payment date. It does make it slightly important what exchange rate is actually used… that’s up for interpretation slightly isn’t it (lots of different versions of reality) or maybe the “mid market” version of reality is standard?
So really there is no need to enter or change any exchange rate at all, relying instead on QF’s feed from XE to set the rate on the invoice date, and the implicit rate determined on payment date from the actual EUR/GBP values?
With that new-found knowledge, I see that I shouldn’t have set the exchange rate on the purchase to what is shown on the actual payment (I had this info to hand this time because I only processed the invoice after the automatic payment had been made)… but unfortunately it seems to be impossible to edit/correct the exchange rate on the invoice date after the event… do you know of a way?
Your bottom line P&L is the same either way, it’s just whether it shows up as “widgets £100 debit” or “widgets £103 debit, currency charges £3 credit”, the net is the same.
@ian_roberts OK thanks, so it’s not worth fretting about… I’ll just do it differently next time. Is there any reason you can think of why it’s not possible to correct the Exchange Rate manually on a Purchase after it has been paid (but it’s possible to edit everything else)? Actually, I now see that if you change the Receipt Date (even putting it back to what it was) the Exchange Rate is updated… but still it’s not possible to actually edit it manually.