Currency issues with the foreign currency bank account

Fluctuation of the foreign currency exchange rates.

This article assumes the following

• The home currency is in Canadian dollars (CAD)
• The foreign currency account is in US dollars (USD)

Create two journal entries to adjust the CAD balance for the USD bank account

1. Create a backup.
2. Find the difference between the current balance (in CAD) and the desired balance (in CAD).
3. Open the general journal window.
4. Select USD in the Currency dropdown.
5. Enter the first entry.
   • If the current CAD balance is too low, debit the US account by $ 1.00 and credit the Exchange and rounding account for $ 1.00
   • If the current CAD balance is too high, credit the US account by $ 1.00 and debit the Exchange and rounding account for $ 1.00
6. In the Exchange Rate field, enter the difference between the desired CAD balance and current balance plus 1.
7. Post the entry and check your statements.
8. Open the general journal window again to enter the second entry.
9. In the Exchange Rate field, enter 1.
10. Enter the exact reverse of the first entry.
11. Post the second entry.

When the current CAD balance is too low

 EXAMPLE:  

 Your USD bank account shows these balances but you want to have the CAD balance as $ 1100.00 based on an exchange rate of 1.1. 

• USD balance: $ 1000.00 (Dr)
• CAD balance: - $ 400.00 (Cr)

Entry 1

Exchange rate = (Desired balance – Current Balance) + 1 = (1100 – (-400)) + 1 = 1501

Debit the US Bank Account by USD $ 1.00, credit the Foreign Currency Exchange Gain or Loss account

The journal entry

Entry 2

Exchange rate = 1
credit the US Bank Account by USD $ 1.00 and debit the Foreign Currency Exchange Gain or Loss account

The journal entry

These two entries will increase the CAD equivalent balance to the correct amount $ 1100.00, and leave the USD balance as $ 1000.00.

When the current CAD balance is too high

 EXAMPLE:   

Your USD bank account shows these balances but you want to have the CAD balance as $1100 as per an exchange rate of 1.1. 

• USD balance: $ 1000.00 (Dr)
• CAD balance: $ 1400.00 (Dr)

Entry 1

Exchange rate = (Current Balance – Desired Balance) + 1 = (1400 – 1100) + 1 = 301

Credit the US Bank Account by USD $ 1.00 and debit the Foreign Currency Exchange Gain or Loss account

The journal entry

Entry 2

Exchange rate = 1

Debit the US Bank Account by USD $ 1.00 and credit the Foreign Currency Exchange Gain or Loss account

The journal entry

These two entries will bring the CAD equivalent balance down to the correct amount $ 1100.00, and leave the USD balance as $ 1000.00.

If the resulting exercise posts a large amount to the Exchange and Rounding Expense account and distorts the expense or income for the year. Consult with your Accountant to adjust this amount to prior years.

Sage 50 Accounting doesn't automatically calculate Foreign Exchange Losses and Gains when posting between Bank accounts. Consider any gains or losses on exchange rates over your fiscal year. The program does automatically calculate exchange losses and gains when posting receipts and payments.

 CAUTION: If your Accounts Receivable and Accounts Payable accounts have Foreign Exchange discrepancies, call Sage support. Don't unlink the accounts to make an adjusting journal entry.