Different currencies

by Victoria
(Kamloops, BC, Canada)

The company (corporation) is working with US and Canadian dollars.

It has two bank accounts (for USD and CAD), but also very often the owner takes cash from US dollars account to pay for the goods in USA with cash. My concern is about currency exchange rate. How should I record transactions from and to USD account?

I understand how to record transactions from USD to CAD bank accounts using Exchange Rate Account but whether I should record exchange rate loss and gain in CAD also every time when there are withdrawals and purchases with cash from USD accounts without involving CAD accounts.

And another question related to this. When the owner withdraws USD cash from USD bank account - should I have some "Cash USD" account in Charts Of Accounts or should it be an account - Loan to/from owner US dollars?

Thank you for your time.

image of fancy scroll lines

Hi Victoria,

These are good questions. I'll try to respond ... and hope I don't forget to mention something. If I do, I'll add another post ... or if you have any more questions afterwards ... or don't agree with what I'm saying, post back so we can discuss it.

I haven't dealt with foreign currency for a few years ... but here is my recollection.

Should I record exchange rate loss and gain in CAD every time there are withdrawals and purchases with cash from USD accounts without involving CAD accounts?

Generally, every US transaction will need to be booked to the income statement at CAD.

You didn't mention the volume of transactions.

If there are not very many transactions, I would convert each entry at the time I am doing my data entry.

If there was a large volume of transactions, I would process any US deposits or US bill payments in the US bank account just like you would in your Canadian account, ensuring you have captured (tagged or identified in some way) the US information booked. I would NOT book the currency valuation at this time.

Then at month end, I would pull out my US information captured (in a report perhaps ... or from your US bank account/statement) ... and book one journal entry at the monthly average conversion rate with the offsetting entry to Foreign Gains (Losses).

Again, depending on the size of the business, I may even decide to book this to Unrealized Foreign Gains (Losses) to reflect the fact that all the transactions were in US dollars and the journal entry is being done for period end reporting only.

I won't discuss how to do the physical transfer between the US and Canadian bank accounts because you have indicated that you already understand this.

Month End / Year End

At period end, you will need to adjust/restate the US balance sheet accounts using the currency rate as at your reporting date ... again through another journal entry.

When the owner withdraws USD cash from USD bank account - should I have some "Cash USD" account in Charts Of Accounts or should it be an account - Loan to/from owner US dollars?

Without more information, it's tough to answer this one. Reading between the lines, I think you are saying the cash was not withdrawn for business purposes but personal use.

Again, I would follow the same rules I discussed above ... dependent upon the volume of transactions. That way you wouldn't need a US account for the owner. You could just use the Canadian account.

How the Chart of Accounts is set up is often due to preference. If an accountant does your year-end reporting, their preferences should be taken into account ... to ensure your billing stays as low as possible ... i.e. the accountant is not having to rework the information to their preferences and needs.

I hope I've answered what you were asking. Like I said, post back if you don't understand anything I've said.

Comments for Different currencies

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Mar 29, 2010
Foreign Currency Transactions
by: Lakeshore Bookkeeping Services

I just wanted to follow up this post with a reliable resource reference on foreign currency transactions.

My CGA textbook entitled Canadian Advanced Financial Accounting by Thomas H. Beechy summarizes it this way:

"Foreign currency transactions are translated into the equivalent amount in domestic currency at the exchange rate at the time of the transaction. Current monetary balances which are denominated in a foreign currency are normally reported in the equivalent amount in domestic currency at the balance sheet date. When current monetary balances are reported at the exchange rate, the gain or loss which arises from any change in the exchange rate between the transaction date and the balance sheet date is recognized currently in income.

... As a practical manner, companies which engage in a large volume of foreign currency transactions may not actually use the current rate for translating each transaction. ... instead the sales may be accumulated for a period of time and a single rate applied to the aggregate. Alternately, a company might use the rate at the beginning of each month for that month's transactions."

Nov 14, 2011
Foreign Currency
by: Tammy, Chase BC

I am working on a client's bookkeeping file where they have a Canadian dollar account and an American dollar account.

What are the bookkeeping entries for when they transfer money from the American dollar account to the Canadian dollar account?

How should I record the evryday transactions that happen in the American dollar account? I mean do I need to convert this to Canadian dollars each time I record it?

Nov 14, 2011
Foreign Currencies
by: Lake

Hi Tammy,

I'm not sure if you'll even see this as you didn't leave an email address when you made your submission however ...

I'll answer your questions assuming you are using QuickBooks Pro or Premier; both have multi-currency functionality. If you are using another program, you will have to enquire with them.

First, if you are doing the books for your client the month following when the transactions occurred - I.E. you are posting September's books in October, then ...

... the first thing I do is look up the average exchange rate for the month of September on the Bank of Canada website. I enter the average rate to the currency list on the first and last day of the month ... in this example September 1 and 30. (You can read in the above postings why I select the average rate for the month.)

Now, do your bank transfer between the two accounts at the average rate using QuickBooks bank transfer window OR write a cheque from one account to the other account. With either method, QuickBooks should use the average rate automatically if you updated the currency list and have not added any other exchange rates to the currency list throughout the month.

When you do your everyday transactions throughout the month, QuickBooks will automatically book the exchange gain or loss for you at the rate showing in exchange rate box (see the illustration in the comment section of the forum posting titled "Foreign Exchange Transactions").

As you are doing bookkeeping for clients, you may want to take some time to formally research Accounting for Foreign Transactions (see http://accounting-financial-tax.com/2009/02/accounting-for-foreign-currency-transactions-and-operations/) and/or the "Unit of Measure Concept" ... so you can understand the theory behind your transactions.

Please let the accountant know there are foreign currency transactions as s/he will have to do some yearend adjusting entries to ensure all the accounts are reported / reflect Canadian dollars.

I hope this helps. If not, please post back about what you need further clarification on.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Member of the QuickBooks ProAdvisor® Program. Screen shots © Intuit Inc. All rights reserved. QuickBooks and QuickBooks ProAdvisor are registered trademarks and/or registered service marks of Intuit Inc.

Nov 23, 2011
Journal Entries for Converting USD to CDN at Year End
by: Lori, North Vancouver

I am currently converting USD to CDN for the year end. I have not dealt with foreign exchange before and need a little counselling.

I am using the bank of canada rate average as there are over 1000 enties, and would like to convert A/R, Bank, A/P and Inventory.

Just need to know the other side of the entries and do I convert the Income and COS as well to a Gain/Loss exchange account.

Nov 23, 2011
Foreign Currency Year End Adjustments
by: Lake

Hi Lori,

If you were doing this manually, you would have a balance sheet account called "Foreign Exchange Conversion" and an Other Income / Loss account called "Unrealized Exchange Gain (Loss)".

All your USD transactions sitting on the balance would be stated in USD and sitting in accounts clearly identified as USD (not mixed in with CAD transaction accounts).

You would do a conversion of the USD balance sheet accounts using the Bank of Canada foreign exchange rate as at the last day of your fiscal year NOT the average rate (as this is a balance sheet adjustment as at a particular day).

Your entry would be:

Debit or Credit Foreign Exchange Conversion (on balance sheet)
Debit or Credit Unrealized Exchange Gain (Loss) (on income statement)

Your balance sheet should now reflect CAD valuations. You can decide if you want to have the conversion account as a single account or multiple ones for each type of account requiring conversion.

If the "Foreign Exchange Conversion" already had a balance in it, you would reverse the entry that created the balance OR adjust the balance to reflect the valuation for the current year (book the difference between the opening balance and the balance you want it to be).

If you had been booking your entries properly throughout the year, all amounts on your income statement should already be stated in CAD not USD.

For example a US credit sale would have been recorded as follows:

DR A/R USD $100
DR Exchange Gain (Loss) $1
CR Sales CAD $101

If the amount received when the A/R was paid was different than booked, you would make the following entry:

DR Bank CAD $102
CR A/R USD $100
CR Exchange Gain (Loss) $2

You didn't tell me what program you are using. If you are using a current version (2009 or later) of QuickBooks Pro or Premier, at your year-end, use their adjustment window under currency list activities to make the foreign exchange adjustment to all accounts receivable, accounts payable, inventory and bank accounts ... at the exchange rate for the last fiscal day. QuickBooks will calculate and record the exchange gain (loss) by customer or vendor, etc.

P.S. Thanks for your question. I think I am going to have to do a foreign exchange chat.

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