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Reply from VidhyaDhar on Nov 7 at 11:59 AM Hi Tatenda,
Let us take the case of a customer invoice raised for @ 1 Unit of Foreign
currency ( Let us say USD ) equivalent to 60 units of your local currency (
Let us say INR) . The receivable (an asset ) is valued at 60 units of
local currency
(INR).
*Your Balance Sheet Shows the Receivable as Sundry Debtors : 60 INR*
However, let us assume that you intend generating your balance sheet at the
end of the month and the receivable is pending collection. However, your
banker informs that 1 USD is worth now 55 INR and not 60 INR as before.
Therefore, reality indicates that your receivable which was raised once for
60 INR is actually worth 55 INR only ( which means that you would be
incurring a forex loss of 5 INR . You need to account for the same and the
Foreign currency valuation program generates an accounting entry debiting
Forex valuation Loss of 5 INR ( shown in the profit and loss statement )
and an equivalent credit entry in the Balance Sheet Adjustment Account.
*Your Balance Sheet during the Month end Shows the Receivable as *
*
Sundry Debtors :
60 INR
Less Balance Sheet Adjustment Account 5 INR
Net Sundry Debtors
55 INR*
*and the Profit and Loss Statement books the loss at 5 INR*
Generation of month end financial statement reflect the receivable
realistically a sum of 55 INR and shows a loss of 5 INR. This, as you can
see, is rendered possible through the balance sheet adjustment account.
Regards,
VidhyaDhar
| | | ---------------Original Message---------------
From: tatenda chigwedere
Sent: Wednesday, November 07, 2012 11:24 AM
Subject: Foreign Currency Valuation (FAGL_FC_VAL)
Hi VidhyaDhar
Thank you very much for helpful response. Could you kindly explain how the Balance Sheet Adjustment Account works in foreign currency valuation because it seems from your response it is a very crucial aspect that needs to be assigned.
Kind regards,
Tatenda |
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