I would appreciate guidance please on how to record the following:
I issue an invoice to an overseas company in my local currency i.e 100
The overseas company pays this invoice in my local currency, but the amount I receive varies by a small amount, either more or less, ie, I receive 102 or I receive 97- I guess the exchange rate used by the company and bank vary.
They do not expect a credit or debit because of this fluctuation.
I record the actual payment received on the invoice in receipts/payments which balances with my bank account.
When I issue the next invoice manager shows either a credit or debit related to the variation which I do not want it to do.
Can anyone advise the best way to deal with this, thanks
Record the difference as a gain or loss (gain if you are getting more than 100, loss if getting less). That way your account will be balanced.
The receipt should include two line items. The first is posted to Accounts receivable > Customer > Invoice# at the full amount of the invoice. This prevents future automatic allocation, overpayment, and underpayment problems. If you ever send a customer statement, the customer will see you have received full payment.
The second line is posted to an account like Foreign exchange adjustments or Bank fees—something that best reflects the nature of the difference. Make this line positive or negative, depending on whether the receipt is more or less than the invoice amount.
The total receipt will now match the transaction at the bank. The sales invoice will be properly zeroed. The account used for the adjustments may be positive or negative, depending on its history. You can classify this account as income or expense; it may end up being a contra account. Typically, the pluses and minuses will cancel out, or nearly so, over time.
Understand that these transactions are not related to the built-in Foreign exchange gains(losses) account, because your transactions were all in your base currency.
Many thanks, I will follow that procedure