Multi-currency Overview

Pilot tracks AP and AR in multiple currencies, the currency of the invoices being based on the currency of the vendor or customer. When you set up a vendor or customer you specify their currency, then all invoices or payments for him/her are in that currency. The (AP) Open Payables report and (AR) Aged Trial Balance report show any foreign currency balances in the foreign currency and in domestic currency. There is an extra line printed such as "Vendor totals (domestic)" for foreign currency vendors and customers, and the report totals are in domestic currency. Also these reports allow currency selection, so you can see how much you owe or are owed in each currency.

The GL is in one currency (referred to as "domestic" currency). Data originating from the AR and AP (revenue and expense accounts) is automatically converted to domestic currency via the exchange rate on the currency table. Foreign currency balances (bank accounts, each foreign currency AP account, AR, and any loans) are stored in foreign currency, but converted to domestic currency by an auto-reversing JV at period-end prior to printing financial statements. See example. This JV uses the latest exchange rate which you would get by phoning the bank, and the foreign currency balances which you could get from the GL Trial Balance report or the GL Totals screen.

The net result is that the expense and revenue accounts are converted using a best guess (the rate for the currency when the invoice is posted), and the difference between that and the actual rate (the day the payment goes through the bank) goes to the exchange gain/loss accounts (one for each foreign currency). Any increase or decrease in the value of the foreign assets and liabilities due to exchange rate fluctuations also goes to the exchange gain/loss accounts. Note: The exchange gain/loss accounts can be categorised as "expense" or "revenue" accounts, either is suitable.

The exchange rates don't have to be updated daily, they only need to be approximately accurate, so maybe only updated monthly, because the fluctuations in exchange rates are tracked through the gain/loss accounts.

When entering AP Checks or AR payments, you specify the bank account. The currency of the bank account must match the currency of the vendor or customer.

Ideally you should have a bank account for each currency you deal in. So if a vendor bills you in xyz currency, you pay him in xyz currency from the xyz currency bank account. Alternatively, if your bank accepts foreign currency deposits to your domestic currency account, you can do this by setting up "dummy" foreign currency bank accounts and entering a JV to convert each deposit to domestic currency.

Example: Domestic currency is Canadian dollars and we want to deposit a US$100 check

Bank name: US deposits

Currency: US dollars (exchange rate: 1.3)

Bank GL account: Bank Canadian

Invoice US$100 (Revenue GL account CDN$130 CR, AR US$100 DR, gain/loss CDN$30 DR)

Payment US$100 (AR US$100 CR, Bank CDN$100 to be adjusted by JV)

JV Description: To record exchange on US deposit

30.00                                Bank Canadian

-30.00                                Gain/loss foreign exchange

To record the purchase of foreign currency see example.

Foreign currency inventory purchases (inventory receipts) are converted to domestic currency when updating inventory costs.

The sales analysis reports and sales history screen show foreign currency sales converted to domestic currency using the exchange rates when the invoices were posted.

The sample data illustrates multi-currency operation. It shows a Canadian company called "Sample Data", which has Canadian and US vendors/suppliers and Canadian, US, and UK customers.

The sample data is created with recent dates: an opening balance JV to 2 months ago, a full month's data to last month including period-end JVs, and some invoices to this month. Note: For data to show on the GL reports and history, the JVs need to be posted.

The opening balance JV has the foreign currencies (bank and AR, not AP which is assumed to be paid out from the prior system) entered in the foreign currency (ie. 100 pounds or dollars = 100) and the amounts required to convert these to domestic currency entered to the exchange gain/loss accounts (debit). Then the period-end auto-reversing JV converts the foreign amounts to domestic and books the difference to exchange/gain loss (credit).

In the 1st period (opening balance transferred from previous system) the net effect is zero for exhange gain/loss and the foreign currency balances are converted to domestic currency for the financial statements.

But in the 2nd period, the income statement for last month shows there was a slight gain since the US and UK exchange rates changed from 1.47 and 2.34 to 1.5 and 2.2 (to Canadian ..the currency of the sample data). This gain being made up from all the amounts automatically logged to the gain/loss accounts from foreign AP and AR invoices, and the period-end JVs.

Note: If you run an income statement for the current period, you'll see a large amount in gain/loss since the sample data doesn't have the period-end JVs for the current period. To see proper data for foreign exchange gain/loss you need to look at the income statement for last month (or enter the JV for this period-end).