If I issue an invoice in a foreign currency and it is paid many days later after an exchange rate change, the value of the invoice in the base currency is affected. How can this be tracked as an exchange rate gain/loss?
I forgot to mention - this currently shows up on the invoices sheet as either a +ve or -ve balance due. In fact it should be shown as “Paid in full” but with an exchange rate gain/loss.
When foreign currencies are involved, an optional field will appear when the context is appropriate to force an equivalency. In the example below, a receipt is being entered against a sales invoice. The bank account to which it is being posted is denominated in Euros. But the customer was denominated in Canadian dollars. Therefore, the sales invoice was denominated in CAD. The sales invoice balance due is converted at the present exchange rate:
By entering the optional CAD amount, which you would take from the CAD sales invoice, you can force the balance due on the sales invoice to remain zero. Exchange rate fluctuations are taken up in the Foreign exchange gains (losses) account, rather than the Accounts receivable balance going up or down. In other words, you can not only make the various currency amounts be equivalent at the time the balance is paid off, you can force them to stay that way. This also handles the situation where the exchange rate fluctuated between issuance of and payment for the invoice. The customer paid what they thought was the correct amount at the time, but the exchange rate may have changed before you receive the payment. Yet you don’t want a small over- or under-payment to remain in Accounts receivable.
When this option to force permanent equivalence makes no contextual sense, the field does not appear.
I see that field and I enter the amount in the base currency that is equivalent to amount received at the current rate - yet I still see either an overdue or overpaid amount on the invoice sheet. Nothing appears in the exchange rate gains/losses account?
Here is my receipt:
And here is the updated invoice:
How can the “Balance Due” be moved to a Foreign Exchange Loss?
BTW - I was using V19.12.13
The payment should be for the full amount of the invoiced amount in the invoiced currency
Use the rate from the date of the invoice. Manager will calculate the difference between this and the current rate and allocate it to the foreign exchange gains / losses account.
Can you please show the edit screens for the invoice and the payment - I am quite confused as to what you have entered?
Hide any names etc which you want to keep private
Sorry, I was a bit hasty to reply earlier without working through it. Is the customer paying in the currency invoiced, or in your base currency?
I’ve just worked through a test case, and if the customer is paying in the currency invoiced, into an account denominated in that currency, then there is no option to specify the amount in the base currency.
If the customer is paying in the base currency, then an option appears to the right to enter the amount in the currency invoiced. So, I would enter the base currency value as it appears on my bank statement / transaction notice, and for the amount to the right in the invoiced currency, I would enter the amount that was invoiced, if you are satisfied that what they paid is equivalent.
The invoice is in AUD (based on a contracted hourly rate in AUD) but the (US) customer pays using USD. The USD conversion amount at time of invoice uses the exchange rate at the time of invoice (using Western Union Business Systems). This amount is noted on the invoice as a custom field (ie, “* Invoice Currency and Notes: The invoice line items are in A$. Currency conversion to US$ has been performed by Western Union Business Systems at time of invoice (see attached). Payment to be made of US$ 3,214.59 as detailed below.”).
The payments typically take about 3 weeks, during which time the exchange rate can vary by quite a bit. Once the customer pays the invoice in USD using a Western Union Account, the AUD amount appearing in the Australian bank account is the amount added to the receipt form. ie the customer has paid the correct USD amount but due to exchange rate variations the amount received in the Australian bank account is not the same as the AUD invoice amount.
Surely this sort of thing is very common for international client/customer relationships? There are foreign exchange rate gains/losses that will inevitably appear. But the way manager sees this at present is that the invoice has not been fully paid/ or overpaid.
I cannot create an invoice using USD as the contracted rate is in AUD which is what the customer demands to see.
To resolve this, I believe there has to be some way of signifying using the receipt form whether or not the invoice has been paid in full.
An example invoice segment with some line items and total
and the US Bank to Australian bank transfer
I realise that Manager needs to either assume that the invoice is not fully paid (current behaviour) or has been fully paid with exchange rate gain/losses. Either way Manager does not have the required amount of information, therefore a way of signifying a receipt has been full paid in foreign currency is needed (IMHO).
The USD dollar amounts on the invoice are notes and have nothing to do with the invoice which is denominated in AUD
When you receive the payment in dollars you will have to post the exchange rate gain or loss separately and post the full amount in AUD to the customer’s account
Normally invoices to foreign customers are denominated in the customers currency not the suppliers, so you will not be able to receive the payment normally in Manager as it is designed to work in the normal way of invoicing and receiving payments from foreign customers.
So effectively you’re issuing an invoice in AUD and receiving payment in AUD (as that’s what shows up in your bank account), but the amounts can vary depending on the exchange rates? Manager has to account for this difference somehow, and has no way of knowing that it should be allocated to foreign exchange gains / losses. Even if you could tell it that you’re happy that the invoice has been paid in full, it would need to know where the difference should go. Are you writing off the difference to encourage customer loyalty? Is it a discount for defective goods? Since Manager doesn’t see the USD aspect of the transaction, it can’t infer the foreign exchange gain / loss.
My suggestion would be to create your own clearing account and use journal entries to post to that to balance out the amounts owing on the invoices. It probably adds a few more steps than you were hoping for, but to me this seems to be an atypical workflow, and allowing users to allocate expenses to the foreign exchange gains / losses account at will for transactions in a single currency (the base currency, no less) would completely compromise the integrity and auditability of that account.
Sorry, it wouldn’t be a clearing account. It would probably be an expense account. (If I understand these terms correctly.)
Ah - but the account that is used as part of the receipt is a USD account - the Western Union Business Systems account. That is why the receipt form displays the receipt in USD and I can optionally then enter the AUD amount in the provided field. Isn’t this a way of letting Manager know that the invoice was paid using USD? See below:
All that is also needed is a way of saying that the invoice was paid in full…
So - how would this be done and also show that the invoice has been fully paid?
Regarding using AUD for the invoice and ultimately receiving the payment in AUD (after Western Union transfer) - surely this is not that uncommon and that exchange rate fluctuations are in play. As a provider of contract services, my contract stipulates an hourly rate in AUD - not a variable USD rate depending on the exchange rate. I therefore have to submit an invoice in AUD which my client insists on paying using USD… The time between invoice submission and receipt of payment is usually close to 3 weeks so inevitably there are exchange rate fluctuations - and also losses that occur with the transfer. The accounting package should be able to account for these things…
The way Manager knows the receipt was in USD is that it was received into a cash or bank account denominated in USD. If WUBS is not operating in USD and defined that way, that is a problem.
Assuming WUBS is denominated in USD, here is a summary of what is happening. You issued a sales invoice in AUD to a customer defined in AUD. But the customer wants to pay in USD. Presumably, you want to consider whatever amount the customer pays (in USD) as being sufficient to cover the invoice in AUD. That is the purpose of the optional field: to tell the program, irrespective of amounts received in the foreign currency, it should consider the receipt equivalent to the amount in AUD entered in the optional field. That amount should match your original AUD sales invoice. As a result, the program will be satisfied that the invoice is paid in full, regardless of how much was actually received and no matter what exchange rates do in the interim or in the future.
That is the purpose of the optional field, as described above.
No, it is not. However, buried in some of the earlier responses is the requirement that if you invoice in AUD and record receipt in AUD, you are going to have to take up the differences somewhere, since the original invoice and ultimate, converted, fee-reduced receipt are not going to match. The way to do that is to allocate the original AUD invoice amount to Accounts receivable on one line and negative amounts for fees and forex on other lines, with the total matching the amount actually deposited to your AUD bank account.
So - if I understand you correctly, in my example, I should have entered AUD$5054.38 in the optional field?
So then how would I enter (specifically) the cost/gain of the foreign exchange transaction - so that it ends up showing as such?
BTW - thanks for the excellent feedback everyone - I am so impressed and I love the accounting package ! (I just need to learn how to use it correctly…)
BTW - something must have changed in the Manager software, because I do have entries in my foreign exchange account:
and, for example, the entry on 12-Dec 19 corresponds to an invoice where there was a foreign exchange loss:
This is exactly how I would like the software to operate for my other invoices…
So what changed???
You have not shown enough in your screen shots to know this. But, that figure would be correct if no tax code was applied on any line item on the invoice.
Cost and gain are two different things. Your costs associated with the transaction would be entered as a separate line item, posted to some suitable expense account. Since this is a receipt, enter the amount as negative. Gains/losses will only apply to things denominated in foreign currencies, such as foreign currency bank accounts. The act of entering the optional AUD amount forces Manager to calculate an instantaneous exchange rate for the particular transaction. Your display of only partial screen shots also leads to uncertainty. (For example, you
As for your last question, you have not furnished enough information to understand what happened. You need to analyze the entire exchange rate history for relevant dates. One possible explanation is that the transaction-specific exchange rate implied by your entry of an optional AUD amount did not agree with the exchange rate in effect at the time. But by using the WUBS processor, you’ve inserted additional factors into the workflow. I would look for a method to just wait until the AUD amount shows up in your AUD bank account and leave the foreign currencies out of the process.