Currency gain - how to account

Accounting
1

Hi all, have searched the archives but with no real sucess. I am doing year-end and on one invoice to an American company the exchange rate shifted favourably. I have decided to make a journal entry to shift that gain out of currency charges (7902) into miscellaneous income (4900). Is that a sound plan?

2

Hi @dlamp

Am I right to think that this invoice is still outstanding or has it just been paid?

3

Paid a long time ago! There was a marked shift in the exchange rate between the day of issue and when I got paid (some sort of public vote was involved…).

The invoice was in USD and normally of course I get slightly less than the amount quickfile estimates based on the exchange rate on the day of invoice, due to the transfer company’s commission. And this therefore appears on P&L under 7902 currency charges. But I am now doing my CT600 and I figured the gain out to appear as income, not as a negative expense.

4

I’m sure you’re already aware on how it works, but for the sake of clarity (and in case another user reads this thread), QuickFile records the exchange rate at two points with an invoice:

  1. At the point of invoice issue
  2. Again at the point of payment

Based on these two, it will automatically record the variation and show it on the individual invoice at the top, and make a ledger entry to account for it - this would be what’s shown in 7902.

Regarding the transfer of the funds from 7902 to misc. income, I’m not an accountant, so you may be best to run it past yours, especially when it comes to the CT600 as they’re likely to be able to advise you better than I can.

5

Thanks. From my POV it would be a lot easier if the money actually received was what went into 4900 General Sales.

6

To keep the (7906) Exchange Rate Variance to a minimum I change the invoice exchange rate to the actual exchange rate paid, if this is not done then if an item goes into stock the value would be unsound and you would be either over/under charging when on selling.

7

Hi Alan, didn’t realise that was possible! Although please note that these are payments from customers and exchange rate fluctuations are a risk I have to take…