Foreign exchange gains (losses)

I currently have this under income. But it is not really income or an expense.

Is it possible to move this to equity which I believe is where the suspense account is located. Suspense account is created here when you forget to allocate an expense/income to an account. So it would be logical to move Foreign exchange account to this location.

While Foreign exchange gains/losses is obviously very different from suspense accounts, I suspect for most people the end result is very similar. You only have to deal with the suspense account when there is an amount in it. For me (and probably many other users), the Foreign exchange gains/losses account is only relevant to me to ensure that when I make a payment in a foreign currency for some goods that I have the correct exchange rate set so that the resulting balance is always zero.

I don’t make a profit or loss using foreign exchange and I suspect 99% of the users using Manager use it in the same way. We buy a product for $100, pay £85 and we have to put in the exchange rate in manager to match that of our bank statement and end up with a zero balance in foreign exchanges. So having it as in income/expense account is not suitable.

For me, this account is more like the suspense account. I just need to get the balance to be zero.

Exchange rate gains/losses are typically filed under other income and are definitely an income or expense

It a Profit or Loss item bro

Yes you are technically correct, but you are both missing the point. The majority of users are not wanting to record a profit or loss on exchange rates.

All I am wanting to do is pay an invoice that just happens to be in another currency. The way manager handles exchange rates is the issue for me. I don’t want to record a profit or loss. I just want to pay the invoice and record the exact amount I paid in local and foreign currency. Therefore income/expense does not come into the equation

1 Like

Yes, it is. Forex gains/losses occur when assets or liabilities are acquired or discharged at different rates, even if the transaction is momentary in nature. If you receive payment in USD and deposit that payment in a USD-denominated account, it may be worth 77 GBP (your base currency) today. Your balance sheet includes 77 GBP in your Cash at bank account. Three weeks later, you transfer the USD to a GBP-denominated account, but discover it is only worth 75 GBP. Your GBP-denominated Cash at bank account declines by 2 GBP. That is a real expense, even though no money entered or left the business. Entry of the forex loss is necessary to balance the books. You cannot magically make the amount zero, because the exchange rate has changed between deposit and withdrawal, so the value in GBP of your USD-denominated account declined.

The same thing happens when you depreciate a fixed asset. No money is spent, but the asset’s book value decreases. Therefore, a depreciation expense is recorded.

That is a hopeless quest when you operate in multiple currencies. At some point in the flow of monies, funds are going to be converted from one currency to another. Or you will force temporary equivalencies that cannot endure through the next transaction. Just the spread between buy and sell rates between currencies will undermine this goal. The only way around this is to allow your bank to make the conversion for you and record the transaction in GBP, effectively using whatever exchange rate the bank offered (less fees) for the conversion. But in that case, you are not really using the foreign currency.

Actually you do. In most cases, the amounts are small, but they are real. And they occur (a) anytime funds are held in a foreign currency or (b) and equivalence is forced when a transaction is entered that differs from an entered exchange rate.

No, you do not, and yes they do. The only way the account can be zero would be if exchange rates never changed, the same rates were used by all parties to all transactions, and there were no spread between buy and sell rates. That’s a nice wish, but real life does not work out that way.

@Tut Your post is absolutely correct when you are talking about the scenarios you are talking about. However I don’t have a bank account in US Dollars and another one in British Pounds Sterling. I have one bank account that is in the UK and I only spend British Pounds Sterling.

All I am doing is buying a product and the supplier happens to invoice in US Dollars. But I am paying from my UK Bank in British Pounds Sterling and the bank is converting my Pounds into Dollars in order to pay the supplier in their currency.

So for my scenario, I don’t ever make a profit or loss in currency exchanges because I am always paying in British Pounds hence my statement that for me this is not an income or expense account. My bank converts it to whatever the exchange rate is for that day and time. I just copy the exchange rate, put in that exchange rate for the day and record the purchase invoice in US Dollars and record the payment in pounds and dollars in payments and receipts.

However, your post has made me think. Maybe I don’t need to create the purchase invoice in US Dollars as I am not actually paying in Dollars per se. I am spending Pounds. That way I could completely remove foreign exchange from Manager completely as I am not using Foreign Exchange in the way you are suggesting.

I just assumed that if I receive an invoice from the supplier and they bill in US Dollars that my purchase invoice needs to match that. I am seeing my accountant tomorrow, so I will ask him.

1 Like

So, @dalacor, you are already doing what I described as allowing “your bank to make the conversion for you…” But you are not going all the way.

What I mean by that is that Manager includes placeholder exchange rates even if you don’t enter any. (I think that avoids divide by zero problems, but I’m not sure.) So when you force the equivalency for any given transaction, your Accounts payable is satisfied, but you have a forex gain/loss. You can make that disappear by putting in the rate for the transaction in question, but that only survives until another transaction comes along with a slightly different rate. So you cannot hide from this if you use multiple currencies.

This is definitely an option, especially if the situation is rare. There are two small consequences to be aware of:

  • You must wait for the transactions to clear your bank before you can finalize your entries. This is probably not a big issue, especially with today’s online banking.
  • Your documentation will not match your supplier’s. That’s probably not an issue either. Just be sure you have good records to substantiate the exchange rate used, for which your bank statement should be sufficient.

Personally, I do this all the time with foreign travel expenses I pay with a credit card. I might return from a trip with expenses in five currencies. I enter the amounts on my card statement (in base currency) and retain the original foreign receipts. Since I have not spent any money in the foreign currencies, this keeps me from having to maintain exchange rates for countries where I only bought a meal at an airport, as an example. I can confine my foreign currency accounting to those countries where I actually work and generate invoices.

I have even done the same thing when a customer paid a base-currency invoice in their foreign currency. I deposited their foreign-currency cheque in my base-currency bank account, adding a negative line item in the receipt for the conversion costs. At this point, you could also add a miscellaneous adjustment line to accommodate mismatches between your customer’s exchange rate and your bank’s. (Of course, this is what Manager will do for you behind the scenes, if you want. But then you are back to your dreaded forex gains/losses.)

Of course, confirm with your accountant that there is no legal restriction on doing this, but I don’t see why there would be.

Alright I will ask him tomorrow if he sees any problems with this. I only have five transactions a year between 3 suppliers!

I think it makes sense to get rid of it. I have the currency exchange on my bank statements all of which are now imported into Manager.

Hopefully if I remove base currency in settings (after deleting all the forex transactions) in exchange rates and set those 3 suppliers as Pounds and change their amounts in invoices - then hopefully I can delete foreign exchange gains (losses) from chart of accounts. Currently there is no delete button option so even if I cleared all transactions, I still can’t delete that COA.

If you delete the base currency, the currency designation field for customers and suppliers will disappear automatically, as will the optional foreign currency field on transactions. Be aware, however, that the numbers you entered for the foreign currency will be retained and need to be edited, so make sure you generate a list of transactions to change before you do it.

The good news is that, unless you delete content first, all the foreign currency information will be retained. You can reactivate it by simply setting your GBP base currency again.

Of course, for peace of mind, be sure to make a backup before starting this surgery.

I am not concerned about deleting the base currency per se, but whether it removes the Foreign exchange gains (losses) COA as there is no delete button to remove this COA. I am assuming that deleting the base currency will delete this COA?

Good point about backing up the data. I will do that right now.

Deleting the base currency also deletes the Foreign exchange gains (losses) account. Like the other content, if you restore the setting, the account and its balance come back.

Unfortunately deleting the Base Currency also deletes the ÂŁ symbol in sales and purchase invoices, so I had to restore my backup. There is no point removing Foreign Exchanges Account as one needs the currency symbol showing on invoices. Oh well.

You didn’t need to restore your backup. You only needed to reset the base currency to GBP. But, if you proceed with your plan, that account will disappear as soon as there are no customers, suppliers, employees, bank accounts, or cash accounts denominated in foreign currencies.

I have found out what happened. There were three inactive suppliers that had their currency set to US Dollars and a couple of invoices had Dollar amounts still on them.

I now have invoices showing in Pounds again, but no currency exchange in either COA or Summary page.

Looking good.

@Tut how should we approach a situation when the main currency is set let’s say in AUD. Our main purchase comes from the EUR customers and the rate of exchange has a significant impact on purchase. Theoretically - I purchase 1000000 EUR on the 1st of January for a fixed rate and record it under inter account transfer with a certain roe. On the 1st of February i purchase another 500 000 EUR. In March I spend 130000 EUR for the product purchase. How does Manager work in terms of using the exchange rates? Should I add the real exchange rate from the date of booking the inter account transfer? 0.63257 in Jan and 0.65200 (for example) in Feb? I guess the calculation for foreign exchange gain loss will use the latter for the transactions after the 1st of Feb. In fact, for the calculation purpose only, the effective rate is the January one, until I spend the first 1000000 EUR?

Should we insert the real exchange rates from the inter account transfers dates only? So 01/01 and 01/02 here? Or should we insert the exchange rates on a daily basis (or at least with dates for which we have transactions) from an external source (bank, fx-platform etc) in order to make sure that the gain/loss reflects the reality?

I run the business with several foreign currencies. So far I have been adjusting the rates in Manager in a way to keep the foreign exchange gain/loss at a minimal level. I guess it has a slight impact on the value of the bank account and purchase transactions in foreign currencies. However, only until the item has been sold, as then the gain/loss is reflected as a part of the total profit(loss)?

In our case we calculate all transactions and project profitability outside the bookkeeping system, so we have the visibility on profitability per item. The gain/loss in Manager are not crucial.

I cannot follow your explanation. Purchases are not made with inter account transfers.

I wanted to say that they are financed from currency bank accounts after the inter account transfer takes place

@gilbert I also try to understand your post. I do not even know what you mean by I purchase and then spend for the purchase. It is not clear what you are actually doing. It would be easier for anyone to help you if you describe step by step with screenshots what you try achieve and where you have questions.

Hi all,

I think I’ve found the answer in the meantime. We need to update the average monthly exchange rates at the end of the month, plus the end year official rate of exchange for P&L and the balance sheet. The profit or loss is an indicator referring to earlier transactions and foreign funds vs. the average/end year exchange rates. In other words - how much would we gained/lost if we kept the funds in main currency.
I have been focusing too much on the individual transactions and exchange rates itself instead of the results of the business.
Thank you for all your help

1 Like

Glad you got it sorted - but I am still non the wiser of what was the problem nor the solution