This feature allows Ordway to automatically calculate and post an unrealized gain / loss on open invoices as a result of changes in foreign currency exchange rates between the time of invoice creation and the end of the month. Journal Entries for unrealized gain / loss are generated in your base currency as part of the Financial Period close process. 

A new Journal Entry type/source type: UnrealizedFXGainLoss is used to post and then reverse unrealized gain / loss transactions. 

Preconditions: 

Related setting and GL Accounts must be enabled via Menu > Setup > Finance in order to use this feature.

Enable Automate Unrealized Gain / Loss

1. Navigate to Menu > Setup > Finance. 
2. Enable Automate Unrealized Gain / Loss for Foreign Currency Transactions in the Multi-currency Accounting section. 
   
   
3. Select the GL Accounts to be used in the Unrealized Gain / Loss Journal Entry from the Default GL Accounts section:
   

   -Unrealized Foreign Currency Gain & Loss 

   -Accounts Receivable Adjustment (for unrealized Foreign Currency gain / loss)

   These GL Accounts must be selected once the above setting is enabled in order to save changes made on the Finance Setup screen. 

   Note: The Accounts Receivable Adjustment can be set to a company’s traditional Accounts Receivable account. This setting just gives the user options to use a related, adjusting account to write-down/write-up the A/R balance.

   
4. Save when finished. 

How and When Calculations are Determined

Open Invoices are revalued when closing a Financial Period. A Journal Entry recording this Unrealized Gain / Loss is created for each open Invoice and is automatically reversed on the first day of the following month. Read more about Closing a Financial Period. 

The Unrealized Gain / Loss is calculated as follows: 

(Invoice amount in transaction currency * End of Month FX rate) – (Invoice amount in transaction currency * Invoice FX rate)

• When the resulting amount is positive, the Journal Entry debits the Accounts Receivable Adjustment account, and credits Unrealized Foreign Currency Gain & Loss account to reflect an increase in the value of the open invoice based on changes in the exchange rate. 
• When the resulting amount is negative, the Journal Entry debits the Unrealized Foreign Currency Gain & Loss account, and credits Accounts Receivable Adjustment account to reflect a decrease in the value of the open invoice based on changes in the exchange rate. 

The reversal Journal Entry reverses the impact of the Unrealized Gain / Loss Journal Entry at the beginning of the following month to reset the Accounts Receivable balance back to the original amount per the Invoice’s exchange rate. This Journal Entry is also created automatically as part of the Financial Close process. 

Both the Unrealized Gain / Loss Journal Entries and the reversing Journal Entries are created by clicking ‘Generate & Close’ from the final step in the Financial Period Close Wizard.

Example: 

An invoice is posted for 1,000 Euros on 2022/04/15 with an exchange rate of 1.122.

The invoice results in the following Journal Entry in the entity’s base currency of USD.

At the end of the month, any invoices that are open (Posted but not yet Paid) will be revalued as part of the month-end close process in Menu > Finance > Financial Periods. 

• The revaluation process begins when Generate & Close is clicked from the Foreign Currency Transactions step of the Financial Period Close Wizard.
• Once clicked, the user is notified via email when the revaluation process is complete and the Financial Period is closed.
• The Unrealized Gain / Loss is calculated  as follows: (Invoice amount in transaction currency * End of Month FX rate) – (Invoice amount in transaction currency * Invoice FX rate)
  • The End of Month exchange rate for April 2022 (from the Consolidated Rates table on the currency) for the Euro is .281 
  • The exchange rate between Euro and base currency on the invoice is 1.122
  • ($1,000 * .281) - ($1,000 * 1.122) = - $841
• The Unrealized Gain / Loss Journal Entry will have the following impact: 
  • Debit Unrealized Gain / Loss for $841; Credit A/R Adjustment for $841.

• A reversal Journal Entry is also created as part of the financial close and dated for the first day of the following month: 
• Debit A/R Adjustment $841, Credit Unrealized Gain / Loss for $841

Summary Entries

After the Financial Period Close Wizard is complete, the Summary Entries section includes a link to the Unrealized Gain / Loss Journal Entries that were created. The Unrealized Gain / Loss Journal Entries can be reviewed by clicking the hyperlink. 

Read More: 

• Adjust Deferred Revenue for Foreign Exchange
• Automate Realized Gain / Loss for Foreign Currency Transactions