DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Foreign Exchange Gain and Loss


#1

Hi All,

there’s been couple of examples of foreign exchange gain/loos, but I still think that my case is a little bit different.

I am running a business between 2 countries. In one (Poland) I am purchasing and in the other one I (Switzerland) I am realizing the sales transaction. The company is based in Switzerland and I have chosen the Swiss Franc as default currency. Additionally, I have also opened the account in PLN from where I transfer money for the purchase invoices. I have also started 2018 with some opening balance on the CHF account.

The idea is that for every project, I do transfer some money to Poland first and I do it via the account transfer function with the actual rate of exchange used for each money transfer. With my first transfer, everything was ok, but with the second one Manager is somehow referring to the exchange rate of the opening and closing balance and adding a gain/loss automatically.

My issue is that these gains/losses are not relevant in my case, as every project is calculated based on a different rate of exchange and I only want to make sure that what I insert in Manager reflects the reality on my bank account. Is there a way of transferring money between two currency accounts without the gain/loss being automatically calculated?

Gilbert


#2

Technically i have found the Forex gain / loss transactions to be ok…except for that irritating .01 entries…

the system entry of cross currencies relationship is important…

what i understand and i hope i have understood it correctly is that your your 2nd transaction came at a later date with a different forex rate, hence such entry is normal… as in the case of your example… the forex rates are different.

i am assuming that opening balance is say on 01.01.2018… and you transfered the amount on say 12.02.2018… and you have also changed the forex table with a different fores exchange rate…

if all the above is ok then system is correct in what it is doing…


#3

Hi Surya,

thank you very much for your prompt reply. Technically it makes sense, as transactions refer to the value of money at some point in time. The fact is that I have started 2018 with some money on the account and for every project I am going to transfer the money between the Swiss and Polish account, where the purchase will be recorder in PLN and the sale in CHF. For every project do have a different rate of exchange and so far I have made two transfers - one dated 30/01 and the other 12/02. However, the second transaction still uses the value from the 1st rate of exchange as a point of referece and the reality is that the ROE has changed in the meantime and by transferring the money now, I do not loose/gain any value. I just transfer them to cover my transaction - and the whole project is calculated based on today’s rate of exchange - not the one from the opening balance, or the date of the first transaction which acts ac a reference point. Ideally, it would be great to have zero gain/loss for every account transfer. I just want to make sure that what I transfer physically is correctly reflected in a Manager (by applying the effective rate of exchange)


#4

Dear Gilbert

its not possible for the system not to show the FX gains or losses… it alwaws refer to the table of exchanges being maintained and any future transactions rate will be correlated and the difference will be posted…

in short your TB/BS or any financial statement will reflect all values at the FX rate mentioned in the table… this is how any system works…
in short by posting the difference of 714… the net value in the books is valued at a FX rate of 3.63

cant ignore…


#5

Hi Surya,

I have actually found a “creative” solution. It is enough to insert one more rate of exchange with an earlier date (01/01/2018 let’s say). By doing so, the later transactions refer to this rate of exchange, so at the end of the year I can insert sort of an average rate of exchange coming from all my transaction and I can set it at the reference level giving zero imbalance (gain/loss).

Thank you once again for your help.


#6

hello Gilbert

i sincerely hope it helps

keep in touch

thanks


#7

No you haven’t but only time will illustrate that to you and as @surya stated “its not possible for the system not to show the FX gains or losses”

Whilst you may fabricate what appears to be a zero gain/loss over the period, the accounting reality is this, every transaction within that period will have a foreign exchange gain / loss relative to that manufactured “average rate of exchange”.

Your case is absolutely the same as for every other user with bank accounts in different countries - foreign exchange differences occur.


#8

Hi all, i have somehow a similar situation as @gilbert, however i am not sure if this is working. Let me try to explain. We are selling machining parts from China and have a company there. When our customer pay, he will pay in EUR, then later on the bank they will change this according actual exchange rate, this is ok. So to handle my issue in manager, I put my planned ex.rate into the settings. Reason for that is that we sell our products in EUR.

so, for example
I sell a product xxx for 100.00 EUR (based on a planned exchange rate 7.400 CNY). So after delivery of my products i get payment from client, he pay 100.00 EUR, then the bank changes the money to CNY, lets say exchange rate is 7.70 CNY = so clear my exchange rate profit

my planned exchange rate i keep the full year and all my quotations are based on that and i put this exchange rate into the setting of manager. Then every time i get info on changes of EUR-CNY, i can see then in the report if profit or loss

this might be a way which is working, at least so far i dont have issue on that but also started 2 months ago with this. I just hope manager will not auto locate any exchange profit to my sales invoice or purchase invoice, then i have trouble !

Dietmar


#9

What you have written sounds good and right.


#10

Here’s another variation on the same theme (I think). I’m just starting to use Manager so I am still in the process of setting up and putting in a few historic transactions so that Manager will start from the start of our financial year.

Our base currency is GBP but nearly all our invoices are written in EUR. Some customers pay by credit card and our card processor only works in GBP. So normally I calculate the exchange rate and make the GBP charge to the customer’s card. I’ve just tried to put in a transaction of this sort, which I understand will produce a small foreign exchange gain or loss. That’s fine. The problem is that the discrepancy shows as a remaining balance against the customer when I regard the debt as fully paid. For example:
I write an invoice for 113 euros.
I calculate the sterling equivalent as 100 pounds.
I charge 100 pounds to the customer’s credit card.
Manager calculates the exchange rate slightly differently (by reference to an online source of exchange rate?) and shows that the customer has underpaid by 1 pound.
I’m happy to show that as a foreign exchange loss of one pound, that will come out of profits at the end of the year.
BUT I don’t want the 1 pound to show against the customer account.

What should I be doing differently?


#11

When you enter the Receive Money for that customer’s invoice enter both amounts GPB 100 and Euro 113 on the Account line.


#12

Sounds simple Brucanna, but I can’t quite get the “enter both amounts”.
Receive Money takes me to a New Bank Transaction.
I select the bank account (my card processor).
The Account defaults to Accounts receivable.
Unit Price and Amount are filled in with 113 although the currency is marked as GBP.
I can change the Unit Price to 100 and Amount follows it.
But where do I put the 113?


#13

I cracked it! For anyone else who is as puzzled as I was, here is my solution.

Exchange rates are all entered manually, and you have to keep it up to date. So every time I do a cross-currency transaction, I either have to do it at the rate prevailing in Manager, or I have to update Manager first. For example:
I set the exchange rate to 1.13 from the start of the financial year. Now my €113 invoice and £100 credit card charge agree perfectly and the customer balance is zero.
If the exchange rate is different the next time, I’ll have to change it before charging the credit card. Then the foreign exchange profit/loss will have a figure in it and that will continue (but fluctuate) for the rest of the year.


#14

Well actually you haven’t cracked it, in fact you shouldn’t be playing with exchange rates for money transactions.

Assuming your customer is setup as euro, to the right of the GBP entry, you may need to scroll right to see it

No, you wouldn’t change it as that will affect all previous transactions, you would “add” a new exchange rate with a date in which it is applicable from.

Unless the exchange rate fluctuates widely, set a mid rate for the year or adjust as required.


#15

Brucanna, you’re right. I hadn’t seen that little box on the right. It was hidden offscreen even though I had the program open in a very large window. I tried a test transaction and it works. Now I have to see if I can go back and change the stuff I already put in yesterday.

I am still a bit confused with how Manager deals with exchange rates. It looks as though it has some figures built-in which were probably right the last time the program was updated. In the case of GBP/EUR it seems to be 1.235 against the current 1.13. So (correct me if I’m wrong) I can put in a more realistic figure on my starting date and then leave it. Come the end of the tax year, I’ll adjust it to whatever exchange rate I’m using for the tax return and that will give me a realistic figure for foreign exchange profit/loss.

NOW i think I’ve cracked it!


#16

Yes

Yes

Not really necessary. Foreign exchange profit/loss is just an adjustment factor, changing the rate just changes the size of that factor, that in it self doesn’t make it more realistic.