AccountRight Premier and Enterprise only
If you buy goods in one currency and pay the bill in another currency, this support note explains how to handle this using AccountRight's multicurrency feature.
1000 cargo containers are purchased from Nash & Sons Pty Ltd for a purchase price of EUR 16000 and the bill is paid in USD.
This scenario is handled using a contra account which will act as a clearing account between currencies.
Let's step you through it.
Before you begin
The tasks below assume you have activated AccountRight's multicurrency feature (Setup > Preferences > System tab > I Deal in Multiple Currencies).
This account is setup as a bank account and is used to pay the Bills and Invoices of the other business in your local currency.
- Go to the Accounts command centre and click Account List.
- Select the Asset tab and click New.
- Make sure you select Bank in the Account Type drop-down menu.
- Give the account a unique number that suits your account list.
- Name the account Contra Clearing Account.
- Click OK.
The currency used by a supplier can be set on their card. This means when a purchase is recorded for that supplier the applicable currency will automatically be used.
- Go to the Card File command centre and click Cards List.
- Click the Supplier tab.
- Click the zoom arrow next to the applicable supplier.
- On the Profile tab, specify the applicable currency.
- Click OK.
Record the purchase as normal (Purchases > Enter Purchases). Referring back to our example, we're buying from Nash & Sons Pty Ltd to the value of EUR 16000.
For this example we'll use the following exchange rates:
Local $1=EUR 0.61 or EUR 1= Local $1.6333333
Local $1=USD $0.75 or USD $1 = Local $1.333333
Here's our purchase example:
The initial payment is made in EURO, which will debit the local $ value from the contra clearing account. You then transfer the applicable amount from your USD bank account to "clear" (balance) the contra clearing account.
Record the payment in EURO
- Go to the Purchases command centre and click Pay Bills.
- Click the Pay from Account option then select the Contra Clearing Account in the adjacent Account field.
- Select the Supplier then enter the Amount Paid.
- Enter the Memo and the Date of the purchase.
- Place your cursor in the Amount Paid field and if necessary enter the amount.
- Click Record.
This example shows the Pay Bills transaction. This will result in a withdrawal of Local $26133.33 from the Contra Clearing Account. This can be quickly checked by viewing the Contra Clearing Account balance in the Accounts List window.
The amount withdrawn from the Contra Account will be the equivalent of EUR 16000 (at the current exchange rate EUR 1=Local $1.633333). AccountRight will automatically convert the EUR amount into Local$ and transfer it from your Contra Clearing Account taking into consideration the Transaction Exchange Rate.
Transfer funds to the USD bank account
You can now transfer funds from your USD Bank Account to the Contra Clearing Account so that the purchase for EUR 16000 can be paid off.
To do this, record a Spend Money transaction (Banking > Spend Money) from the USD Bank Account to the Contra Clearing Account. Here's our example:
Please note that the equivalent of Local $26133.33 is USD$19600 at the exchange rate of Local $1=USD $1.333333
This calculation is performed as follows:
USD $1=Local $1.333333
USD $19600=Local $?
USD $ 19600 * 1.333333=$26133.33
This will result in a deposit of $26133.33 into the Contra Clearing Account and a withdrawal of $19600 in the USD Bank Account and the remainder in the USD Exchange Account. This can be quickly checked by viewing the Accounts List window.
If you have a few cents balance in the Contra Clearing Account, a General Journal entry can be done, allocated to the Currency Gain/Loss Account as this difference can be caused due to rounding in different exchange rates. See Unrealised currency gain or loss.
It's possible to enter foreign currency transactions in a local currency account.
You receive a cheque from a customer for GBP 5000 (UK pounds) against an outstanding invoice, and you want to bank it in your local currency account. Let's assume the exchange rate has changed from $2.5 to $2.3 since you made the original sale.
To bank the cheque:
- Go to the Sales command centre and click Receive Payments. The Receive Payments window appears.
- Select the Customer. Details of their purchase appear.
- In the Deposit to Account field, select your local currency account.
- Click Rate:GBP. The Exchange Rate window appears.
- In the Transaction Exchange Rate field change the rate from $2.5 to $2.3.
- Click OK. The Receive Payments window reappears.
- In the Amount Received field, type 5000.
- Click in the Amount Applied column then press TAB. The Out of Balance field displays 0.00. The Gain/Loss field shows a loss (in local currency) as a result of the new exchange rate. This amount is posted to a currency gain/loss account.
- Click Record.