My income is 95% in US$ and when I enter my invoices in QF it values them in GBP at the live XE rate which is not, of course, the rate I will get when receiving payment.
I have a US$ Account with a UK bank and all payments [wire transfers] are paid directly into this account. I convert funds to GBP and deposit in a sterling account on an ad hoc basis, [ie only when I choose to / as and when needed.]
Am I right to assume that the valuation of the invoices at the end of my financial year is based on the XE rate at date of invoice - if so how do I adjust my income in the P&L account I’m about to submit so as to be an accurate reflection of my earnings ?
And how do I get the end of year sterling value of the $ account in the balance sheet to reflect the real value ?
If I bill say $10000 and [say] QF values this at GBP 7500 … when the client pays i allocate $10000 to their account. But [assuming the exchange rate doesn’t change] the $1000 is actually only worth £720 when I eventually exchange because XE indicates an unavailable mid-rate and the bank takes a profit. How does QF know this ?
Surely my income in the P&L is still shown as £7500 and not the real amount of £7200 ? Or am I missing something ?
There’s an option on foreign currency bank accounts to “record a currency loss/gain”, which creates a special journal that adjusts the GBP nominal value without touching the foreign currency balance, putting the double entry to currency charges (the same place as the automatic loss/gain when you log a payment against a foreign currency invoice to a GBP account).
In your example, when you pay the invoice into your USD account it will show up in the nominal ledger as £7500 based on the XE exchange rate. When you transfer from the USD to GBP account the USD balance will go down by $10,000 but the GBP nominal balance only goes down by whatever you set on the GBP side (£7,200), leaving a nominal balance of £300 debit. The revaluation journal would calculate the correct nominal value given that day’s XE rate (zero if the USD balance is zero) and journal the difference to currency charges.