I’ve followed the recommendations elsewhere on how to record employee/director expenses (create loan accounts, create employee/director as supplier, raise invoice for each expense and pay from loan account, then transfer from bank to expenses loan account when expenses are reimbursed). I have expenses in EUR, GBP and USD, and I have bank accounts in these currencies too. Even though these expenses have been reimbursed and equal zero 0 on the bank accounts page, on the balance sheet they show a gain/loss which I presume is because that has tracked value vs GBP and the bank accounts page shows the amount in the native currency.
Two things may have contributed to the gain/loss on the expenses account, but I’m not sure:
I have always tried to reimburse in the same currency as the expense, however sometimes I had to reimburse in a different currency, which I balanced by transfers between expenses accounts
Expenses were not reimbursed immediately (which is typical) which may have contributed to the currency gain/loss on the loan account over time.
I don’t want these gains/losses to appear on the balance sheet because:
As far as the business is concerned the expenses have been reimbursed and
If there are gains or losses then these are for the employee/director personally and not for the business, right?
However this method puts currency charges on the profit/loss account, which I don’t think is correct because these are not gains/losses for the business but for the employee/director personally.
What might I have done wrong and what is the correct way to reconcile these gains/losses in the expenses account?
By the way, even though I journaled out the gains/losses they’ve come back again as exchange rates have moved! Maybe I just need to do this at the end of every financial year?
This is spot on. When the currency isn’t GBP, we use the daily spot rate provided by xe.com as a benchmark for tracking the GBP value. As you rightfully mention, this is to due to the reporting being in GBP.
In some cases the exchange rate can come from a transaction (e.g. when tagging as a transfer, we’d use the two values to determine the exchange rate).
I believe this is the origin of the currency variation. As it’s the spot daily rate that’s used, the value would be the same if it’s made and paid on the same date (unless you use a different exchange rate), so there’s no fluctuation. But when there’s a delay of even a day, this can cause the difference.
What I would suggest, to ensure it’s done correctly, is to check this with an accountant, as I appreciate your point regarding the reimbursements. However, we’re not accountants so unable to give advice on this, whereas your accountant would likely know your situation much better than we do anyway.
It may be best to do this on a regular interval, like every month, every year - however you see fit. The difference with a currency gain/loss journal and a normal journal, is that it only affects the GBP values and not the actual account values.
Thank you for your reply and confirming that it looks like Quickfile is working as intended. I did ask my accountant how to deal with gain/loss in this case but they wanted to charge me for the answer, which was a bit of a surprise…
I was wrong about Quickfile still changing things over time, I checked again and the balance sheet value has been static for a few days so I obviously got my wires crossed before. I’ll look again at how I’ve dealt with reimbursements as perhaps there’s a smarter way to record them which might remove some of the gain/loss on my personal side. If I still end up with some gain/loss then I’ll try and find out how I should deal with this - maybe get a new accountant!
Edit - can I repost this in the accounting category?
If you are interested we also have a panel of accountants (familiar with QuickFile) to choose from, for more information, please see the following link:
