Does anyone know why Manager uses an old exchange rate (in this case from May) for all the subsequent transactions even if each of the subsequent transactions have their own exchange rates registered in their postings?
See here for example the rate used for the most recent transaction:
This is just a feature where users can batch update exchange rates on transaction level with global exchange rates defined under Settings → Currencies → Exchange Rates.
You might set your base currency though. It seems like your base currency is not set. It’s not impacting your accounting but will make your user interface show it where relevant.
This is our base currency
The issue is that I added one transaction in Euro (forex for us) and I went from forex gains to big forex losses, and I think it is due to this automatic change of rates Manager has done.
It seems I have no option to avoid this problem of Manager changing the exchange rates. I must use the rates registered in each transaction. How do I avoid this?
Try to understand the concept. The Exchange rate defined under Foreign currencies is the main Exchange rate which Manager would use to valuate your balance sheet accounts. In your case Exchange rate is define in May 2024 i think. After that you haven’t define any exchange rate so Manager uses the last availanle rate.
The exchange rate defined on each transaction will be used by Manager to determine your foreign currency gains or losses on a specific transaction.
In your case you need to update Exchange rate in Settings>Currencies>Exchange rate whenever you are doing a foreign currency transaction. The exchange rate on a specific date can be pulled from the web while entering exchange rate.
On Transaction level it is not needed to be filled Manager will autofill it with latest available forex rate.
Ok thanks. But then I wonder what is the need to have the exchange rate field in each transaction if Manager disregards them?
And if Manager uses, as you say, the transaction exchange rate to calculate loss/gain (which seems not to happen to me) that has an influence of both the P&P and B/S.
Can you please clarify?
Thats because exchange rate fluctuates continuously. It can vary from transaction to transaction even on the same day.
This way you can value your Sales/Purchases at the exact exchange rate you got for that particular transaction. While receivables and payables will be valued at the global exchange rate which is defined under settings. The difference goes to P&L.
@lubos can you please confirm what @shahabb has explained?
I thought that the exchange rates recorded in setting are valid for a long period of time, until a new one is recorded, and therefore one of this exchange rates can have an impact of several transaction, whereas the exchange rates in the single transactions are valid only for the single transactions, and this allows for flexibility with exchange rates. But it seems this is not how exchange rates work in Manager.
I dont know what kind of confirmation you need. Create a Test business and confirm it yourself.
Yes, that the case in Manager too. Thats why your balance sheet is valued at the rate 1395.353045 because you are not updating the exchange rate under settings. Why are you surprised to see big forex gain/losses.
In your case i think you dont even need to enter exchange rate on transactions , Manager will autofill it. Just update it under settings whenever you are performing a foreign currency transaction.
I am not surprised of the figure itself. I had forex gains and with just another one more transactions I now have high forex losses, which is weird because the exchange rates at which I exchange FCY is always higher than the official one from the central bank that we have to use when we post receipts of FYC.
It is a lot easier to add the exchange rate while posting a transaction rather than go into setting and post an exchange rate there. It is one posting instead of two.
Overall I do not understand the differentiation between the Balance Sheet and P&L when it comes to forex rates. If a FCY transaction has an impact on both sides, like any other transaction.
I tried to explain why you are seeing those gains/losses and suggested to test it yourself by creating a scenario in Test business which u didnt.
Maybe someone else on this forum can help you.
Manager has it’s way to deal with realized and unrealized foreign exchange differences automatically without user intervention. To do so, you will have to:
Exchange Rates under Settings periodically which will serve as Official/Standard exchange rates to value your balance sheetThe reason why these two are not the same thing is simple: Governments.
To further explain, let’s take this example:
While my bank may give me a BHD/USD rate of 0.375, the government will insist on booking the transaction using BHD/USD @ 0.3775 for tax purposes.
In this case, I will use the first figure for my internal management purposes, later, at each Quarter end before filing my tax returns, I will have to revalue my Invoices to the official exchange rates:
There are many countries across the world that require their taxpayers to adhere to an official set of exchange rates.
What you propose is similar to how Tally generates it’s exchange rates table by appending the spot exchange rates individually entered in transactions. This method fails to account for nuance of the case described earlier.
The simple solution in your case is to rely on spot exchange rates in every transaction since you don’t use standard exchange rates except and you prefer entering spot exchange rates in every transaction, if I understood you correctly.
Later, when you need to draw your Balance Sheet – Once per month, Qtr, etc – you can enter a single Exchange Rate in the Settings.
Thank you for the explanation.
Indeed we have the same issue, the government’s official rates, in an economy where the rates of the main currencies (USD and EUR) keep going up, which means mostly forex losses if you buy in forex, but mostly forex gains if you sell in forex.
Any transaction in forex (either expense or invoice) has to be registered with the official government rate. Most expenses in forex are made with a debit/credit card, therefore the actual cost here is denominated in the base currency as the bank automatically converts the expenses.
Expenses in forex such as bank charges on a FCY bank account need to be converted in Manager using the government rate of the day, and no gain/loss should happen, as it is just a cost conversion.
The problem arises with invoices to clients. I issue invoices to clients in forex and receive payments in FCY. However when I receive a payment in FCY I rework the invoice and denominate it using the base currency at the government rate on that date of the receipt (and delete the one in FCY). This is still compliant and makes me avoid the issue of forex gains/losses due to the difference in rates between the invoice date and the receipt date.
However, when I exchange the received FCY at a bank or a local forex bureau the rate is always higher than the one used by the government, so there is basically always a gain. This is why I am surprised to see in my P&L a forex loss now.
I have now added all the rates under setting, so I have the same rates in settings and in each transaction (which is a repetition, I know) but the problem persists. And like last year I will have to work on the forex gains/losses manually. It would great if Manager was able to do this job automatically.
For the balance sheet, what I do is just to add the official government rate on the 31/12/2024 in order to have the forex revaluation. And that rate is also used for the bank charges on the same date (which go in the P&L).
As far as having to manually change exchange rates for transaction, I don’t believe this to be a problem:
(1) If you have to update your exchange rates daily – in some countries, they require the forex rate to be printed on the tax invoice for reasons unknown to man. In this case the user must enter daily exchange rates using either of these two methods:
Autofill. This way all new transactions will be recorded at the most recent exchange rate. You can also run the same Batch update to catch any and all outliers.In either scenario, the most valuable part of this entire process – and what sets Manager apart, is being able ensure that all forex transactions are compliant with the standard exchange rates in this last Batch update.
(2) If you don’t need to update the exchange rates daily – in many countries, the government only cares about the filed figures being translated at official rate regardless of what rate was used during original creation of invoice – if any at all. In this case, I would completely forgo updating exchange rate and leave the spot exchange rate set to Autofill. This will set the transactions’ spot exchange rate to the last exchange rate since your last filing. This will also eliminate all the daily work updating exchange rate. Then, just before filing, Batch create all your Exchange Rates and then Batch update all your transactions in one go – Job well done!!!
This leaves us with understanding how foreign exchange differences.
You’re always going to face the issue of forex differences for a myriad of reasons such as:
Normal change in forex rate between initiation and revaluation (Unrealized)
Change in forex rate between last valuation and actual payment or conversion (Realized)
Using two different rates (i.e. government rate and actual rates)
Manager will calculate those correctly, since despite all the complex textbook explanations, these figures are nothing but glorified plug figures after valuing forex assets/liability balances using different forex rate (in this case the most recent) from its component transactions which are recorded at historical exchange rates. If these two conversions are correct, then the exchange rate difference is correct as well.
You can easily verify this by taking a look at View > Journal of any transaction:
And by looking at your Summary > Foreign exchange gains (losses) account under Profit & Loss statement, which will detail the calculations:
You can clearly see that the valuation involves both Assets as well as Liabilities and this segways nicely into the next concern of yours:
This all depends on your forex position:
if your net position is long (net assets in forex) then appreciation in forex rate will result in gain and vice versa.
If your net position is short (net liabilities in forex) then appreciation in forex rate will result in a loss and vice versa.
In order to determine how you got this loss, you need to examine:
Your Summary > Foreign exchange gains (losses) account
The history of your transactions, it’s possible that there’s a single high value transactions that experienced an opposite trend. For example, while forex rate climbed from 2.65 to 2.79, one major transaction was booked at a rate of 2.85 in the middle of the period. This happens quite a lot with fluctuating exchange rates.
