Overview
ActionStep comes with a full Foreign Currency ability. Foreign Currency is where you are holding Foreign Currency Bank Accounts. You may do Sales in USD and hold funds in USD, your base currency being NZD. For the puposes of reporting these transactions will be converted at the rates in your system - where the rate has changed since the transaction the system will create "Unrealised Foreign Exchange Gain/Loss". This gain/loss is "Realised" when the funds are converted with a bank transfer in/out of your local currency.
How this is calculated?
we We split our FX up into 3 sections:
1. Bank Revaluations
2. Realized Gain/Losses
3. Unrealized Gain/Losses
- 1. Bank revaluation - is the difference between the posted rate and the current rate for bank transactions. Simply shows you what your bank account is worth at today's exchange rate and accounts for gains/losses made in transferring funds between accounts.
- 2. Realized Gain/Loss is the difference between the posted rate of an invoice and the payment rate for 1 or more payments against that invoice.
- 3. Unrealized Gain/Loss is the same calculation as Realized, except it assumes the balance of the invoice is paid at today's exchange rate.
All three are calculated on the fly and have detailed breakdown reports to justify their numbers. We do this because it prevents the system from creating inconsistencies with back/future dated transactions and/or changes to the historic exchange rates.
This also (potentially) allows us to work in more then 2 currencies, so you could invoice in USD, pay in AUD and report in NZD.
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ActionStep does not consider a purchase in a Foreign Currency out of your Local Currency to be a multi-currency transaction (your local currency left your bank account). At the moment these types of transactions will need to be manually calculated. |
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Foreign Currency Set Up
This is an Administration function.
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Some of these accounts would be currency specific and others could be shared (depending on how much breakdown and visibility is required).
For the FX Gains/Losses revaluations etc to calculate, you will also need system accounts for these calculations (or you won't balance).
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- "Sale/Purchase Rounding Errors" - When 1c rounding errors are detected in a database, the difference is posted to this account.. Can occur in FX or BASE currency and appears to only occur when invoice is inclusive of tax.
- "FX Gain/Loss Receivables Realized" - Difference between sales invoice posted rate and the actual payment rate.
- "FX Gain/Loss Receivables Unrealized" - Difference between sales invoice posted rate and the current rate for un-paid amounts
- "FX Gain/Loss Payables Realized" + "Unrealized" Same as above but purchases.. Can be linked to the same account for convenience if wanted.
- "FX Gain/Loss Bank Revaluations" - Money gained or lost in bank transactions based on the value of the money deposits/withdrawals vs the current calculated balance
- "FX Gain/Loss Other Assets" - This calculates the revaluation of asset accounts which have a non base currency (excluding bank + linked A/R + A/P accounts).
- "FX Gain/Loss Other Liabilities" - Same as assets, but for Liabilities :)
There is are a lot of accounts to link here, but they are all very important and if you miss one the Balance sheet may be out, but due to the structure of the code, it will not warn you if you are missing one of these (as that may be your intention to exclude one or more of these accounts).
If you are actively using 3 currencies, then they need to link all 3 currencies for each system account. They can all be in the same account though.. you could create one account called "FX Gain/Losses" and link every system account with every currency to it. However you are also free to create one account for every currency and every system account if you want to see explicit detail on your income statement.
Below is a sample of a section of the System Accounts - showing that they are mapped for every currency and in this example all mapped to the same income account.
Exchange Rates
Administration . Accounting > Exchange rates
This screen lists the current known exchange rates in relation to the Local Currency as specified in the CONFIG screen.
There are three main functions of this screen:
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By selecting a date in the Calendar Control and clicking the Refresh button , the visible list will show the known exchange rates as at that date/time. By default, the current date/time is used.
Viewing History
By clicking the link on any of the currencies listed, you can view the history for that entry. The history will show Affective Date, Exchange Rate and the Source/Comments of the data.
Entering Rates
By clicking the "Add/Update Exchange Rate(s)" link, you will be taken to a new screen. In this screen, you will be presented with 4 input boxes for each foreign currency.
BANK Buy Rate (to get 1x Local Currency)
BANK Sell Rate (to get 1x Foreign Currency)
Each one of these is then broken up into two options: [ value ] = 1 Local Currency, [ value ] = 1 Foreign Currency
You only need to enter one of the two options and it will automaticly calculate the other (using 1/X to calculate).
When entering data from your local bank or foreign exchange agent.
BANK BUY - This is the rate that the BANK will exchange your foreign currency for your local currency.
BANK SELL - This is the rate that the BANK will exchange your local currency for foreign currency.
These numbers should be slightly different depending on your banks markup on the currency. This data is NOT designed to be the actual cost of exchange, rather a guideline for your expected income. Most businesses will hold the foreign currency until the local currency is doing well, then convert a lump sum to make a profit on the exchange and to also avoid bank exchange fees for small amounts.
You only need to enter the values that have changed, any blank fields will not be altered.
Forex Gain/Loss
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How this is calculated?
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1. Bank Revaluations
2. Realized Gain/Losses
3. Unrealized Gain/Losses
1. Bank revaluation - is the difference between the posted rate and the current rate for bank transactions. Simply shows you what your bank account is worth at today's exchange rate and accounts for gains/losses made in transferring funds between accounts.
2. Realized Gain/Loss is the difference between the posted rate of an invoice and the payment rate for 1 or more payments against that invoice.
3. Unrealized Gain/Loss is the same calculation as Realized, except it assumes the balance of the invoice is paid at today's exchange rate.
All three are calculated on the fly and have detailed breakdown reports to justify their numbers. We do this because it prevents the system from creating inconsistencies with back/future dated transactions and/or changes to the historic exchange rates.
This also (potentially) allows us to work in more then 2 currencies, so you could invoice in USD, pay in AUD and report in NZD.
FX Contract Example
The following example explains the process for managing FX Contracts. This method removes the forex gain/loss from the trader. If your policy is always to hedge forex sales then you need to factor in the cost of the hedge (not the resulting gain/loss) into your cost of sales. This is no different than factoring in freight etc into cost of sales.
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In order to see where the FX figures on your Income Statement come from, see the report
Accounting >> Reports >> Accounts>> Accounting>> Realised FX Entries
Entering Hedges
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