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Hi Christine
Let us first understand that foreign currency valuation is a process used
for two purposes:
1. Fair valuation ( without overstatement / understatement ) of related
Assets and Liabilities in financial statements during closure of books and
2. Accounting of notional losses and / gains related to valuation in the
profit and loss account toward fair quantification of profit / loss in
books during closure of books
Both the aforesaid events happen when the volatile foreign currency
involved in the related transactions undergoes a fluctuation during closure
of books.
However, a valuation difference is notional and not real ( as opposed to a
realization difference which happens during clearing ) and such valuation
is for sheer reporting purposes only. Therefore, valuation differences are
not posted to customer / vendor accounts; instead they are posted to a
balance sheet adjustment account which is read along with the customer /
vendor reconciliation accounts for arriving at a fair valuation of
receivables / payables without disturbing the related reconciliation
accounts. However, if you want related details with customer-wise /
vendor-wise break up for analytical purposes, you could see that such
information is captured in a table called FAGL_BSBW_HISTRY ( in the New
General Ledger ) / a field called BDIFF in BSEG table ( in the classical
General Ledger ). In any case, the valuation difference is not posted to
the customer / vendor account. This helps in fair reporting without making
the process cumbersome.
Let me furnish an example and we can see the significance:
My company code is in India and uses INR ( Indian Rupee as local currency )
and in India...it is mandatory to close books on the 31st March of each
year.
on 01 March 2011 : I raise a sale invoice on a customer in the USA for 1
USD valued @ 48 INR and the line item remains open
on 31 March 2011 : I have to close books and 1 USD is currently worth 45
INR only ( So, I incur a valuation loss of 3 INR for reporting purposes )
Reporting happens as follows :
*
Balance Sheet *
* Profit and Loss Account*
*Assets*
Total Receivables : 48
INR Valuation Loss : 3
INR
Less Balance sheet Adjustment : 3 INR
=======
Net Receivable 45 INR
=======
You can observe that a valuation loss of 3 INR and a fair valuation of
receivables at 45 INR has been reported .....but without disturbing the
customer ( viz. total receivables ).
It is likely that subsequent valuation(s) / realization difference may be
different , depending on further exchange rate fluctuations and posting
valuation differences to individual customer / vendor accounts makes
maintenance of receivables and payables difficult . In fact, you would be
spending more time reconciling valuation differences (many a time) and
this effort is wasteful, as you can see. Therefore, all valuation
differences ( for reporting purposes ) are pooled in a common balance sheet
adjustment account which can be easily reversed , usually immediately after
the key date of reporting. This helps not only in fair reporting but also
makes the process of maintaining customer / vendor accounts easy.
Therefore, valuation differences are posted to a common representative
general ledger account and not to customer / vendor accounts.
Regards
VidhyaDhar
| | | ---------------Original Message---------------
From: Christine
Sent: Thursday, November 24, 2011 4:01 PM
Subject: Foreign Currency Valuation (FAGL_FC_VAL)
Hi Vidhya,
Financial department wants to see the foreign currency valuation (gain and loss) to be posted (and reversed) on customer's or vendor's accounts too.
Within FAGL_FC_VAL, I just can do it for G/L accounts.
Maybe I have to look for another transaction.
Can you please give me your feeling about this topic ?
Thanks in advance.
Regards,
Christine |
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