Foreign exchange Revaluation

I have looked everywhere, but cannot find any applicable answer.

It happens that I need to purchase items abroad. For this, my bank provide me with a foreign currency card. I purchase currency and load it onto the card. I then use the card abroad in USD.

I also have a USD bank account set up. So when I load the card, I do an inter account transfer and capture the applicable exchange rate at the time of the transaction.
The problem is when I then buy items and capture it in Manager, (I make the payment from my USD account), the program generates a gain/loss. It is as if the program update the exchange rate on the day that the purchase was made, and not when the currency was bought.

I think this is wrong, seeing that the forex was bought at a specific date and all items bought afterwards in the foreign currency, should have the same conversion rate of the date that the forex was bought initially. Am I wrong in reasoning like this?

Your description of the situation is not clear, @ZAFMike:

  • You did not say what your base currency is.
  • You said your bank provides you a foreign currency card but that you use the card abroad in USD. But, if this is a prepaid debit card, it can only be used in the currency in which it is denominated. Please describe the attributes of this card more completely.
  • Describe more completely how you load the card. What bank account are you using to fund loading of the card, and how is it denominated?
  • You mention, “…I then buy items and capture it in Manager….” Are you referring to buying items with the card? If so, why do you then say, “I make the payment from my USD account…?”
  • You refer to buying currency, but you have not described using currency (as in physical cash), but only the card.

In general, understand that a prepaid debit card is equivalent in Manager to a cash account, not a bank account. You would transfer money from a bank account to the prepaid card with an inter account transfer. If you purchase something with the prepaid card, there is no further currency information to be entered. You simply create a payment transaction with the prepaid card’s cash account as the source of funds.

Hi @Tut

My apologies for not being clear. Base currency is ZAR. You are correct. It is a prepaid card.

I see where my mistake came in. I made the USD account a bank account and not a cash account. Slip of the finger when clicking. :slight_smile:

Thank you very much for the help. Much appreciated

@Tut , I corrected the account to cash account, but something still seems off. Not sure if it is something I am missing (most likely).
I do an inter account transfer from my ZAR account to credit my USD dollar cash account. When I do this, I also manually capture the applicable exchange rate that I get on that day.
From there, I purchase good in USD, and debit my USD cash account. This should not require anything else as you rightfully mentioned.
The only problem that I still get a “a Foreign exchange gains (losses)” exception.
When I click on the debit amount, I get the following:

I have a positive balance in my USD account, but this should not be subject to exchange fluctuations. Or can it come into play when you do multiple inter-account transfers to the cash USD account on different dates? I can see that this will affect the price if you convert it back to your base currency. But it should not be a forex gain or loss.

If you have an asset account, account receivables, bank accountfor example, which is denominated in a foreign currency then you will always have a Foreign Exchange Gain/Loss whenever you have a fluctuating exchange rate.

The value of the balance at the report date will be calculated in base currency using the exchange rate at the report date.

If you are transferring money from our ZAR bank account to your USD cash account, the USD cash account will be debited. (Money going out of a cash or bank account is a credit and money going in is a debit.)

A purchase (spending money) will credit the cash account.

What do you mean by “exception?” Your balance sheet shows a gain or loss depending on exchange rates you have entered. Specifying the two currency amounts on the inter account transfer just fixes the transaction. It does not affect later conversions to your base currency for presentation on the balance sheet.

That is incorrect. The balance in USD of the cash account may not change, but the equivalent balance in your base currency can go up and down as exchange rates change.

Why not? The USD balance is worth more or less in your base currency than when you filled the card.

@Joe91, I understand what you mean, but this is a cash account. So once money in transferred into this account, surely exchange rates should not be a factor anymore. In my case, my base currency is ZAR. So if I when I transfer money to my USD cash account, it is in USD. No exchange rate should come into play. I might be mistaken though.

I understand what you mean, but the way I see it, and hear me out. If I have USD 100 cash in my account, it does have a ZAR equivalent, but should this be taken into consideration, because it is not in my base currency? It is only applicable once you exchange the money. That is how I see it. Maybe I am missing something here.

If you purchase 100 USD dollars for 1,500 Zar you will have 100$ with a value of 1500Zar

If the exchange rate changes to say $1 = 1600Zar you will now have 1600 ZAR in assets. You have made a foreign exchange gain of 100 ZAR

I completely understand what you mean Joe. Maybe I just think differently than beancounters. :slight_smile:
For me, I see it like this. You purchase something for $100 (ZAR1500) and use it for your business. So you business has an “asset” valued at ZAR1500. Even if the exchange rate fluctuates, your asset is still worth ZAR1500, because that is what you bought it for. And you are not going to dispose or sell it in the foreign currency. (I hope I make sense)

Where I see forex gains/losses come into play is when you invoice a client in a foreign currency.

Let us take the following example: I issue an invoice for USD2000. At the time of the invoice, the ZAR/USD exchange rate is 1:10 So the ZAR invoice value is ZAR20000. The client pays the invoice in USD. At the time the money reaches my account, and it is converted into ZAR, the exchange rate is now 1:15. So now the ZAR value is ZAR30000. So now I have made a forex gain of ZAR10000.

I might be dead wrong in my understanding, but this is how I see it. I will ask my auditors when I see them again. :slight_smile:

You 100$ is not a fixed asset like a car or building or piece of machinery

You could sell them back and get 1600 ZAR so the gain is indeed real even if not realised.

Your auditor will not say anything different. If he or she does, change them immediately

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Understand what you mean. If I may take the following as an example. My business renders services in a foreign country. In that country, the business incurs expenses like meals, small tools, and more. This is all paid for by means of the USD cash account. I debited the cash account with $100 (ZAR1500), I spent $50. In the meantime, the exchange rate has fluctuated, but does that make a difference, because the money is still in $, and not ZAR.
How does exchange gains/losses come into play here?
I am not trying to argue. Just trying to get a better understanding.

The principle of needing a base currency in accounting is necessary to have a uniform understanding of the value of your business. Even if you change all that you have in one or more foreign currencies, for accounting and tax purposes it would be seen as paid for by the base currency. Therefore forex gains/losses will need to be used to ensure that the cost of what was purchased reflects the correct cost in the base currency.

So you changed ZAR1,500 and transferred that to the USD Debit Card where it is valued at $100 based on an exchange rate of $1 = 15ZAR. You buy that same day a meal for $50 and your accounting system will translate this to $50 * 15ZAR = 750ZAR when the exchange rate is still the same.
However next day the exchange rate changes to $1 = 20ZAR. Again you buy a meal for $50 and this will translate to $50 * 20ZAR = 1,000ZAR.

So while in practice you spent $100 for 2 identical meals in your base currency one of the 2 meals was 250ZAR more expensive. So the actual cost in ZAR for the same has become more expensive and therefore a FOREX exchange rate loss needs to be recorded to balance your finances.


@Foreign Exchange Revaluation. This is something problematic while working with multiple currencies. My base currency is INR. I’ve US & Canadian customers. Ex. I issued invoice of say $1000 on Nov-22 & I got paid in Dec-22 so if there is the change in rate of the currency, say on Nov-22 based on previously entered exchange rate 1$ = 80 INR & when I got paid rate was changed to 1$ = 78.86 so this difference is get reflected under Foreign Exchange Revaluation.

Second problem, my some customer are In-Active as they have not paid some invoices so that amount is get reflected as a “Receivables” but practically it should not be there.

Third problem, invoices which are released but yet to be paid as also reflected under FX revaluation. How to rectify this scenario. Please guide.

This is standard accounting practise for foreign exchange receivables

If you have invoices that will not be paid, then you need to write them as bad debts

Thanks Joe for your reply. I’ve found solution for un-paid invoices & I can simply marked them as a closed but please guide me about my first & third problem noted above. If there is rate difference then it’s still showing as gain/loss. How can solve this problem? I’m adding exchange rate after every transactions. Pl guide.

Please show the edit screen of one of the invoices and of the payment(s) associated

It seems as if you have not entered the correct information for the payment

What do you mean by mark as closed? there is no such feature for Sales Invoices

Please see the snap. I sent the invoice on 09/30/22 of $2540 so based on previous exchange rate the value in INR was 1,69,175. My customer paid me on 10/31 & based on respective $-INR rate I got paid 2,02,240. Manager software is showing difference amount as a gain but it’s not at all gain for me. I used 20 version earlier & there were no issues now I’ve upgraded to 22 version & facing these issues. Please help. @Tut @lubos

Please show the EDIT screens of the sales invoice and receipt