When invoicing and receiving payments from customers in foreign currencies, the value of these transactions may change based on exchange rate fluctuations against the base currency configured for your company. These changes may result in a foreign currency gain or loss.

To save time during the month-end close process, Ordway enables users to automatically capture those changes in value and post journal entries representing the realized gain or loss for each transaction.

Note: This feature applies only to multi-currency users. 

All foreign currency transactions will be converted into the based currency selected in the Manage Currencies settings page.

When invoices are generated in Ordway for a non-base/foreign currency, an exchange rate is stored with the transaction. These rates are then utilized to measure gain or loss at the time of payment or refund of a payment.

Realized Gain or Loss transaction calculated differences result in one of the following: 

1. A gain where the non-base currency exchange rate makes the transaction more valuable than it was at the time the invoice or payment was generated.
2. A loss where the non-base currency exchange rate makes the transaction less valuable than it was at the time the invoice or payment was generated.

Realized Gain and Loss transactions can apply to both Payments and Refunds.

Enable Realized Gain & Loss

Steps: 

1. Navigate to Menu > Setup > Finance > Multi-currency Accounting to enable this setting.

2. Once enabled, a Realized Foreign Currency Gain & Loss Default GL Account must be selected. An error is displayed when this step is not complete.

Once these steps are complete within Finance Setup, Journal Entries are automatically generated that capture the foreign currency fluctuations for your non-base currency payments and refunds.

What happens after a Realized Gain or Loss is recorded?

Journal Entries must be generated once a realized Foreign Currency Realized Gain or Loss is recorded and apply to both full and partial invoice payments. The journal entry generated will always be in your company’s base currency.

These can be generated automatically when Automatic Journal Entry Generation is enabled, or run manually via a Journal Entry Run. 

When payments or refunds have been made in a non-base currency transaction, two separate Journal Entries are generated:

1. This first Journal Entry is generated for the payment or refund itself in it’s transaction currency. 
2. The second Journal Entry is generated in the company’s base currency to capture the realized gain or loss.
   • Payment or Refund is the source transaction for this Journal Entry, with the Transaction Type of RealizedFXGainLoss.

Examples: 

Invoice generated for $10,000 in a foreign currency.

Exchange rate at the time of invoice was 0.5 and equal to $5,000 in the base currency. 

Result: A Journal Entry was generated with an Accounts Receivable balance equal to $5,000 or the amount that will be collected based on the exchange rate stored with the invoice.

Payment Scenario A

Payment applied to the invoice 30 days after invoice date with a current exchange rate of 0.4769. This means that the payment has a value of $4,761.90.  The difference between the initial $5,000 value for the invoice and the $4,761.90 value of the payment results in a realized loss. 

Result: Realized loss of -$238.10.

Payment Scenario B

Payment applied to the invoice with a current exchange rate of 0.526316. This means that the payment has a value of $5,263.16. The difference between the initial $5,000 invoice value and the new $5,263.16 payment value is represented by a realized gain.

Result: Realized gain of $263.16.

Refunding Payments

An exchange rate is recorded anytime a refund is processed. If the exchange rate changes between the time of payment and when the payment is fully or partially refunded; the value of the payment is impacted. Therefore, the same Gain or Loss logic applied to invoice payments also applies to refunds. 

Examples:

Payment generated for $6,000 in a foreign currency. 

Exchange rate at the time payment generated was .333 and equal to $2,000 in the base currency. 

Result: A Journal Entry was generated with a Cash Balance equal to $2,000 or the amount that it was collected for.

Refund Scenario A

Payment refunded 10 days after the payment was received with an exchange rate for the refund of 0.5. This means that the amount refunded in the non-base currency is $3,000. The difference between the initial $2,000 value for the payment and the $3,000 value of the refund results in a loss. 

Result: Realized loss of -$1,000.

Refund Scenario B

Payment refunded 10 days after the payment was received with an exchange rate for the refund of 0.25. This means that the amount refunded in the non-base currency is $3,000. The difference between the initial $2,000 value for the payment and the $1,500 value of the refund results in a gain. 

Result: Realized gain of $500.

Reporting

Journal Entry Source Type RealizedFXGainLoss is available and can be queried via Analytics Reports via the Advanced Report Builder. In addition, Realized Foreign Currency Gain or Loss can be evaluated in any Analytics report that offers the Source Transaction Type filter.

Read More: 

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