Hi,
I have a bank account in USD.
Because of a mistake in currency conversion in the tax return of the previous accounting year, the actual closing balance of the USD account on Quickfile (and the assets section of the respective annual statement) shows about 100 GBP more than it should have.
Now I am preparing the accounts for the next accounting period, and I would like to adjust the opening balance so that it matches the actual amount that I have in the bank.
The opening balance for this year is by definition the same as the closing balance for last year.
You can use the tool in the USD account settings to revalue the USD balance at the year start exchange rate to get the GBP balance sheet value back into line, and that will post the difference to the “currency charges” P&L nominal on the relevant date - this is double entry bookkeeping so you can’t just arbitrarily change the balance on one account without a balancing entry somewhere else.
Thanks,
I understand that the opening balance is carried forward from the closing balance of last year. Hence why I want to correct the opening balance, since the closing balance was wrong.
Thank you for your suggestion. By “tool in the USD account settings” do you mean the feature that lets you specify the opening balance?
Because the mistake from the previous year created an additional 100 GBP out of thin air, would it not be incorrect if the re-balancing affected P&L? This money never existed to begin with.
The tool I’m referring to is the “journal out a currency loss/gain in a foreign bank account” section of this KB article.
When you have a bank account in QuickFile that is denominated in a currency other than GBP, QuickFile actually maintains two parallel balances for the account, one is the actual foreign currency balance (in USD in your case) and the other is the balance sheet balance which is always in GBP. Any time you make a foreign currency transaction QuickFile records both the change to the USD balance and the corresponding change to the GBP balance caused by that transaction. For a foreign currency payment this will be the GBP value of the currency amount at the date of the transaction, for a “transfer between accounts” it will be whatever amount of GBP you set for the other end of the transaction. As you can see, this will mean that the underlying GBP balance on the balance sheet will naturally drift one way or other away from the “true” value of the asset (the value of the USD balance if it were converted to GBP at today’s exchange rate) as different transactions happen at different exchange rates.
The tool I referred to is how you correct for this drift, what it does is adjust the balance sheet GBP balance without changing the USD foreign balance, by calculating what the USD balance would be worth at a given date’s exchange rate, subtracting that from the drifted GBP balance, and putting the matching entry onto your P&L to recognise the gain or loss caused by the accumulated drift.
The £100 “loss” on this year’s P&L counteracts the mistaken £100 gain caused by converting the balance at the wrong rate last year - that’s the point where the £100 was “created out of thin air”.