Currency Revaluation

peter-halpenny · ‎September 10, 2022

Hello,

Hoping someone can help me to understand the exchange gain/loss that is created (by journal entry) as a result of performing a currency re-valuation.

In my case, the home currency is CAD and I typically revalue USD to CAD on the last day of my fiscal year. Prior to running this revaluation, transactions are automatically created in the Exchange Gain/Loss account each time I receive payment in USD. For example, on March 15, 2022, I invoiced a customer for $2550 USD at an Fx of 1.281148 representing $3266.93 CAD. On March 24, 2022, I received full payment at an FX of $1.253274 representing $3195.85 CAD. The Exchange Gain/Loss account was automatically debited for $71.06 representing a realized loss. At the end of the fiscal year (before running currency revaluation), the balance in the Exchange Gain/Loss account equaled the sum total of all gain/losses related to completed USD sales transactions. In my case, there was a debit balance of $327.32 at this point. When I then run USD to CAD currency revaluation it creates a journal entry that shows a debit the Exchange Gain/Loss account for $1101.66 and a credit to my USD bank account for the same amount. It is not clear to me what the amount $1101.66 represents and how it is calculated. I would very much appreciate some help on this.

Notes:

I have 1 USD bank account where I receive payments from US customers and 1 CAD bank account where I receive payment from Canadian customers.
Approximately once a month, I transfer almost all funds from the USD account to the CAD account.

McBrideBookkeeping · ‎February 15, 2023

Hey @peter-halpenny

I know this is an old one but I understand your question and noticed you never really got a direct reply.

What happens when you run the revalue currency in QBO is that it looks at your Foreign currency balance and uses the exchange rate on that date to figure out what they "should be" in local Currency. This is then compared to your actual local balance in QBO which can be seen on a Balance Sheet or Trial Balance Report. So the $1,101.66 in your example is a revaluation gain/loss based on the closing rate.

Here's a Simple Example

$10 USD in = $13CAD

$5 USD out = -$6.40CAD

$10 USD in = $12 CAD

$5 USD out =-$6.90 CAD

Closing USD Balance is $10 - Closing CAD Balance is $11.70

Closing USD Rate is 1.27 - so CAD Balance "should be" $12.70

Here's where your $1101.66 came from but mine is only a $1 gain

Cash type balances are the only ones I'd ever revalue and only if the difference was significant or Material.

I'd recommend you look for a ProAdvisor or Accountant in your Area who will take the time to explain these things to you and help you out.

Hope this helps for now, keep up the Good work !

Richard

Keeper of the Books

View solution in original post

Jen_D · ‎September 11, 2022

Thanks for reaching out to us regarding this Currency Revaluation concern, Peter.

Currency revaluation records the currency valuation from the exchange rate fluctuations. If the results are not accurate, you can simply delete the home currency adjustment journal entry, then re-run the Revalue Currency procedure.

Here's how:

Go to Settings ⚙.
Select Currencies under LISTS.
For the currency in question, choose Revalue currency from the dropdown under Action.
Click the Revalue history tab.
Open the one you want to delete.
Hit More at the bottom, then Delete from the resulting popup menu.

I've added the following articles below for more information in managing the currency revaluation process:

If you need further assistance in managing your currency, leave a comment below. It's always a pleasure to help you here in the community.

peter-halpenny · ‎September 12, 2022

Thank you for your reply Jen D but I'm afraid you did not answer my question.

To be clear, I would like to know what the amount $1101.66 represents and how it is calculated.

Many thanks,

Peter

Trish_T · ‎September 12, 2022

Hi peter-halpenny,

Thanks for getting back to us here. In addition to the information provided above, it's important to understand how QuickBooks Online uses exchange rates. for additional clarification, I recommend speaking with your accountant. If you don't have an accountant, we can help you locate a ProAdvisor in your local area.

If you have any other questions, feel free to reach back out. We'd be glad to assist!

McBrideBookkeeping · ‎February 15, 2023

Hey @peter-halpenny

I know this is an old one but I understand your question and noticed you never really got a direct reply.

What happens when you run the revalue currency in QBO is that it looks at your Foreign currency balance and uses the exchange rate on that date to figure out what they "should be" in local Currency. This is then compared to your actual local balance in QBO which can be seen on a Balance Sheet or Trial Balance Report. So the $1,101.66 in your example is a revaluation gain/loss based on the closing rate.

Here's a Simple Example

$10 USD in = $13CAD

$5 USD out = -$6.40CAD

$10 USD in = $12 CAD

$5 USD out =-$6.90 CAD

Closing USD Balance is $10 - Closing CAD Balance is $11.70

Closing USD Rate is 1.27 - so CAD Balance "should be" $12.70

Here's where your $1101.66 came from but mine is only a $1 gain

Cash type balances are the only ones I'd ever revalue and only if the difference was significant or Material.

I'd recommend you look for a ProAdvisor or Accountant in your Area who will take the time to explain these things to you and help you out.

Hope this helps for now, keep up the Good work !

Richard

Keeper of the Books

peter-halpenny · ‎February 15, 2023

Hi Richard,

Thank you very much for answering my question. Your answer was very clear and helpful.

Peter

McBrideBookkeeping · ‎February 15, 2023

Wow @peter-halpenny Thank you !

I did a thing and it worked, so Happy I could help & I got a new Badge for it !

I'm collecting "Stickers" and "Badges" here on my Profile lol. Keeps me amused and I love solving problems.

For the record your understanding of Foreign exchanged seemed pretty good for the average person. Most people wouldn't get as far in the Logic as you did. I've seen plenty of Books in CAD only with a USD account and then some random sub account to post all the "Exchange difference" total joke and not the way to do it lol but hey it works, some of them have been in operations for years like that.

A good Accountant or Advisor will usually help sort that out....usually. always safe to ask them, we're not psychic

Keep it up !

Richard

Keeper of the Books

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