Hi, I hope someone can help me understand this scenario.
I use a platform online that takes sales in Euros and I pay fees in Euros also. The platform keeps a record of these transactions and I can mirror the transations by creating a merchant account and raising a sales invoice for the sales and a purchase invoice for the fees and tag these to the merchant account to mirror the data on the platforms records.
Now when it actually comes to withdrawing funds from the platform they will send GPB to my UK bank account and their conversion rate. Again I can mirror this by tagging the incoming funds in my UK account to the EUR merchant account at the conversion rate they used so everything matches up.
Where I become confused is what happens to that Euro merchant account when it comes to P&L. How will quickfile know what the balance in that merchant account is worth at year end when we need our final yearly figures. Obviously our base currency is GBP, so how will this all work?
If Quickfile uses some sort of conversion rate to get a figure, that will change somewhat at the point when the platform pays me in GPB and uses their conversion rate, it seems there will always be stray funds in the form of conversion differences knocking about in the background so to speak.
Is that normal and just part and parcel of trading in different currencies. You could effectively sometimes lose or make money therioetically due to these currency conversions?
Where I become confused is what happens to that Euro merchant account when it comes to P&L. How will Quickfile know what the balance in that merchant account is worth at year end when we need our final yearly figures. Obviously our base currency is GBP, so how will this all work?
You would usually revalue the value of currency you hold, please see the last section of the below article.
Is that normal and just part and parcel of trading in different currencies. You could effectively sometimes lose or make money theoretically due to these currency conversions?
This is correct as currencies fluctuate over time. to get an accurate balance sheet at a set date you would revalue at that days rate.
Ok, but do you have to do that last stage in the link Invoicing in foreign currencies. Will Quick File not just automatically convert the EUR account to show the value it has in GBP for the date you choose to set for the P&L page?
Ok, but do you have to do that last stage in the link Invoicing in foreign currencies. Will Quick File not just automatically convert the EUR account to show the value it has in GBP for the date you choose to set for the P&L page?
It would yes the P&L is converting invoice loss or gains at the rates entered, the losses or gains would be accounted for in the overheads section.
The revaluation option is more for the value of Currency held on the bank account as of a set date for your balance sheet.