Prerequisites

Your Home Currency must be configured before you can use this feature.

Meaning of foreign currency gains and losses

When you sell products or services to customers in a foreign currency, the value of that currency changes based on the exchange rate. If the value of the currency goes up or down after you invoice a customer but before you collect payment, then you have made a foreign currency gain or loss on that invoice.

Journal Entries

The following section describes the FX gain and los creation for the GL entries.

Note that If the billing document remains unapplied at the end of the accounting period, the original entries are reversed at the beginning of the next accounting period.

Realized gains and losses

For example, let's say your Home Currency is USD, and you post an invoice for 100 GBP to a British customer. On the Invoice Date (1 Jan 2023), 100 GBP is worth 150 USD. On the date (10 Jan 2023) that the customer pays the invoice, the value of 100 GBP has risen to 155 USD. Therefore you make a realized gain of 5 USD.

Scenario for payment unapplied from invoice.

If the same payment (dated 10 Jan 2023) is unapplied from the invoice (dated 1 Jan 2023), then it would be a Realized gain of 5 USD.

Similarly, when a Credit Memo (dated 10 Jan 2023) of 100 GBP is applied to a Debit Memo of 100 GBP and on the Debit Memo date (1 Jan 2023), 100 GBP is worth 150 USD, while on the Credit Memo date, it has fallen to 145 USD. Therefore, it is a realized loss of 5 USD.

Considering the FX rates for GBP to USD as follows:

• 1 Jan 2023 (Debit Memo Date) - 1 GBP = 1.5 USD

• 10 Jan 2023(Credit Memo Date) - 1 GBP = 1.45 USD

Next, if the Credit Memo of 100 GBP is refunded and on the Credit Memo date (1 Jan 2023) 100 GBP is worth 150 USD while on the refund date (10 Jan 2023), it has fallen to 145 USD, it is a realized gain of 5 USD.

Considering the FX rates for GBP to USD as follows:

• 1 Jan 2023 (Credit Memo Date) - 1 GBP = 1.5 USD

• 10 Jan 2023 (Refund Date) - 1 GBP = 1.45 USD

Unrealized gains and losses

A gain or loss is "unrealized" if the invoice/DM/unapplied credit memo/Unapplied Payment has not been paid/applied by the end of the accounting period.

Reversal journal entries must exactly replicate the original journal entries, directly negating them to maintain a clear audit trail and avoid introducing new variables. This ensures that segment values remain consistent with the original entries.

If the customer updates the segmentation rule and wants the new segment values for the reversal entries, they must cancel the journal run for the original FX gain/loss entries. Then they should re-run the journal to reflect the updated segment values. The original FX gain/loss entries and their corresponding reversal entries should always maintain identical segmentation to prevent discrepancies.

The following sections provide examples that show how the unrealized gains and losses are calculated for each use case.

Invoice with balance

For example, say your Home Currency is USD, and you post an invoice for 100 GBP to a British customer. On the Invoice Date (1 Jan 2023), 100 GBP is worth 150 USD. The invoice has yet to be paid by the end of the current accounting period. On the last day of the current accounting period (31 Jan 2023), the value of 100 GBP has risen to 155 USD. Therefore, as of the end of the current accounting period, you have an unrealized gain of 5 USD.

Considering the FX rates for GBP to USD as follows:

• 1 Jan 2023 (Invoice Date) - 1 GBP = 1.50 USD

• 31 Jan 2023 (Last AP Date) - 1 GBP = 1.55 USD

Unapplied payment

Say your Home Currency is USD, and you have an unapplied payment of 100 GBP. On the Payment Date (1 Oct 2023), 100 GBP is worth 150 USD. The payment has yet to be applied by the end of the current accounting period. On the last day of the current accounting period (31 Oct 2023), the value of 100 GBP has fallen to 145 USD. Therefore, as of the end of the current accounting period, you have an unrealized gain of 5 USD.

Considering the FX rates for GBP to USD as follows:

• 1 Oct 2023 (Payment Date) - 1 GBP = 1.50 USD

• 31 Oct 2023 (Last AP Date) - 1 GBP = 1.45 USD

Debit Memo balance

Say your Home Currency is USD, and you post a DebitMemo for 100 GBP to a British customer. On the DebitMemo Date (1 Jan 2023), 100 GBP is worth 150 USD. The DebitMemo has yet to be paid by the end of the current accounting period. On the last day of the current accounting period (31 Jan 2023), the value of 100 GBP has risen to 155 USD. Therefore, as of the end of the current accounting period, you have an unrealized gain of 5 USD.

Considering the FX rates for GBP to USD as follows:

• 1 Jan 2023 (Invoice Date) - 1 GBP = 1.50 USD

• 31 Jan 2023 (Last AP Date) - 1 GBP = 1.55 USD

Unapplied Credit Memo

Say your Home Currency is USD, and you have an unapplied CreditMemo for 100 GBP. On the CreditMemo Date (1 Oct 2023), 100 GBP is worth 150 USD. The CreditMemo has yet to be applied by the end of the current accounting period. On the last day of the current accounting period (31 Oct 2023), the value of 100 GBP has risen to 155 USD. Therefore, as of the end of the current accounting period, you have an unrealized loss of 5 USD.

Considering the FX rates for GBP to USD as follows:

• 1 Oct 2023 (Payment Date) - 1 GBP = 1.50 USD

• 31 Oct 2023 (Last AP Date) - 1 GBP = 1.55 USD