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AdaptAccounts Currency Manager supports multiple Currencies.

 

If you deal in only one Currency and Currency Manager is not installed then just skip this section.

 

For example, if you sell only in U.S. Dollars and buy only in U.S. Dollars and maintain only U.S. Dollar bank accounts, then multiple currency support is not relevant to you.

 

Base Currency

Before proceeding, let's clarify some concepts and set up a simple example of a commercial environment involving multiple currencies.

 

The term "base currency" means the currency on your Financial Statements in which you express other currencies. Usually that's the currency of the main country for a Company. A Company based in Australia for instance, would typically use Australian Dollars as the base currency. The term "foreign currency" means all other currencies except the "base currency".

 

Let's assume this example Company is based in Australia and sells on terms to U.S. Customers and buys on terms from U.S. Suppliers in U.S. Dollars. This Company then has two Accounts Receivable Subledgers - one in Australian Dollars and one in U.S. Dollars. It also has two Accounts Payable Subledgers - one in Australian Dollars and one in U.S. Dollars.

 

It also has two Bank accounts - one in Australian Dollars and one in U.S. Dollars. The U.S. Dollar Receipts are deposited to the U.S. Dollar Bank account. Similarly, disbursements to the U.S. Dollar Suppliers are issued from the U.S. Dollar Bank account. At any point in time there are Receivables and Payables that are due in the future which are expressed in currencies other than Australian Dollars.

 

The U.S. Dollar Receivables is its own little world where everything is in terms of U.S. Dollars. Invoices and Purchase Orders are issued, posted and distributed in terms of U.S. Dollars. Payments from U.S. Customers are received in U.S. Dollars and deposited into the U.S. Dollar Account. Payments to U.S. Suppliers are issued from the U.S. Dollar Account. Customer Statements, Receivables and Payables Trial Balances, Collection listings etc. are all expressed in terms of U.S. Dollars.

 

AdaptAccounts for SQL Server supports multiple currencies at the individual transaction level. Each transaction specifies its CurrencyID and CurrencyRate. Note that certain kinds of transactions, such as Payroll transactions, occur only in base currency. All other transactions, such as Sales Orders, Sales Invoices, Purchase Orders, Purchase Order Receipts, Accounts Receivable transactions and Accounts Payable transactions, specify CurrencyID and CurrencyRate. In a multi-currency environment the CurrencyID and CurrencyRate will vary. In single-currency environments the CurrencyID is always the base currency and the CurrencyRate is always 1. This makes it easy for a Company in a single-currency environment to migrate to a multi-currency environment.

 

So that’s the environment and the basics. Now let’s see how it’s handled.

 

Each Subledger Control Account and Bank Account specifies its CurrencyID.

 

Customers and Suppliers inherit their CurrencyID from their respective Subledger Control Account.

 

Transactions inherit their CurrencyID from their respective Customer or Supplier.

 

Transactions obtain their CurrencyRate from the CurrencyRate table based on their CurrencyID and transaction date. These CurrencyRates are typically updated on a daily basis.

 

In some cases, such as for Sales Orders and Purchase Orders, that initial CurrencyRate may be changed. It may be “locked in” and used as the CurrencyRate for subsequent derived transactions such as Sales Invoices or it may be allowed to “float” and have the subsequent derived transactions such as Sales Invoices determine the applicable CurrencyRate based on their own transaction date.

 

In other cases, such as transaction entry and importing of Receivables and Payables transactions, the CurrencyRate determined from the CurrencyRate table at the time of posting is used directly.

 

When Journal Entries are generated for foreign currency transactions in Receivables, Payables and Sales the system converts them into their equivalent base currency value using the CurrencyRate specified for each transaction.

 

This means the effects of these foreign currency transactions are immediately reflected in the General Ledger.

 

This provides the fundamental level of support but the system goes beyond this.

 

Although these foreign currency transactions have been converted into base currency using the applicable CurrencyRate specified, ongoing currency fluctuations will cause Balance Sheet Accounts denominated in a foreign currency to reflect older exchange rates rather than current exchange rates unless something else is done.

 

This is the purpose of “Revalue Balance Sheet Currency Accounts” transactions. These enable those foreign currency Balance Sheet Accounts to reflect current exchange rates.

 

Currency Offset Accounts

The system also supports and mandates the use of Currency Offset Accounts for Subledger Control Accounts and Bank Accounts and equivalents denominated in a foreign currency. This enables their currency adjustments to be posted to a separate but associated Account.

 

Without Currency Offset Accounts, those Accounts would contain entries in both foreign currency and base currency. Although their balances would reflect the adjusted effect of foreign currencies this is not a satisfactory approach. It is necessary to be able to easily distinguish between the actual U.S. Dollar transactions and their currency adjustment transactions separately.

 

Currency Offset Accounts let you easily distinguish between the original foreign currency transactions and their currency adjustment transactions.

 

Here’s how it works. Each Subledger Control Account and Bank Account and equivalent that is denominated in a foreign currency specifies its Currency Offset Account. Currency adjustments are posted to the Offset Account rather than the original Subledger Control or Bank Account.

 

Revalue Balance Sheet Currency Accounts transactions

These adjustment transactions enable Accounts denominated in a foreign currency and having a Currency Offset Account (e.g. Subledger Control Accounts and Bank Accounts and equivalents) to reflect current exchange rates.

 

These transactions are generated by the user using the “Revalue Balance Sheet Currency Accounts” task. The user selects the Currency and Fiscal Year and Period and confirms the CurrencyRate as defined in the CurrencyRate table

 

The system analyzes each applicable Account denominated in that currency. For each such Account it compares what the current adjusted balance is with what it should be. If the difference exceeds 1.00 it is posted to the Currency Offset Account with a corresponding entry to the Currency Gain/Loss Account. Note that these transactions are fully safely repeatable since if there is not a material difference then nothing happens.

 

Conclusion

From time to time in our example Company, money is transferred from the U.S. Dollar Bank account into the Australian Dollar Bank account. Similarly, it's transferred from the Australian Dollar Bank account to the U.S. Dollar Bank account. It's only at that point in time that real currency gains or losses occur.

 

Actual currency exchange rates constantly fluctuate. Currency adjustments help us see a much better overall picture but they do not necessarily reflect what the actual exchange rates will be when these foreign currencies are converted into our base currency. Companies with significant opportunities or exposures can use forward trading techniques as appropriate. AdaptAccounts' multiple currency support helps support such activities by maintaining the necessary information to do this in a form you can use.