Using Foreign Exchange Revaluation Journals

Using the Foreign Exchange Revaluation Journal for your foreign currency Customers, Suppliers (Vendors) & Bank accounts

Written By Grainne Reidy (Super Administrator)

Updated at June 5th, 2024

Introduction

This function enables you to revalue the balances of your foreign bank, customer or supplier accounts using the month end exchange rates. Adjusting journals for the value of the revaluation will be posted to the relevant control accounts and the unrealised gains/losses account

Realised Gains/Losses

The system allows for multi-currency transactions, meaning you can set up Bank, Customer, and Supplier (Vendor) Accounts in a currency that differs from your company’s base currency. The system will then translate these transactions into the base currency. Translation rates come from the system’s currency table, but you can override them on specific transactions. 


Transactions are complete when either a Customer pays their account, a Supplier (Vendor) account is paid, or a Bank account is converted to the base currency. The system calculates and automatically posts any realised gains/losses.


A gain occurs if:

  • a Foreign Exchange (FX) payment costs less in base currency than that originally posted.
  • an FX amount received costs more in the base currency than originally posted.

A loss occurs if:

  • an FX payment costs more in base currency than that originally posted.
  • an FX amount received costs less in the base currency than originally posted.

Financial Year-Ends

If you want an accurate Balance Sheet at a specific period-end, consider the real value of any outstanding FX balances at Balance Sheet date . Bear in mind any changes in the exchange rates that may have arisen since the FX transactions were originally posted. Unrealised Gains/Losses mean that the gains or losses may not actually be real at that point in time.
 

To give you an accurate picture, the 3-step revaluation wizard lets you:

  • revalue your Foreign Bank, Customer, or Supplier (Vendor) Accounts at any point in time.
  • post the corresponding adjusting journals to the General Ledger automatically. Gains/Losses are posted as reversing journals to only affect the month-end reporting. 

 

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Info

 The Revaluation function is only available in the multi-currency version of the system. 

See:

Consolidation Group Setup (12.1) - AIQ Academy

Company details and settings (2.1) - AIQ Academy

How to run the consolidation process in AccountsIQ (12.2) - AIQ Academy

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The Purpose of Revaluation

A Balance Sheet reflects the financial position of the company at a particular point in time. FX balances that were previously posted and are still outstanding are likely to be worth a different amount if the FX exchange rates have fluctuated since the transactions were posted. 
 

For example, a Supplier (Vendor) account balance of €5,000 Euro converts to £3,023.98 GBP at a monthly average exchange rate of 1.653450 Euro to the STG £. However, if at month-end the exchange rate has risen to 1.752908, the €5,000 is now only worth £2,852.40. This represents a reduction in the amount owing of £171.58, which is an unrealised gain to your company. This means if the company paid the Supplier (Vendor) at that point in time, it would have to pay £171.98 less than when the original invoices were posted.
 

While a fluctuation in exchange rates may not be permanent, it usually represents a trend in the rate. It is good accounting practice to recognise gains/losses as they arise rather than waiting until the transaction is paid. Revalue any outstanding FX accounts on a period-by-period basis. You should recognise the values on the balance sheet for Debtors, Creditors, or Bank Accounts in base currency at each month-end. The system facilitates this approach with auto-reversing journals. 

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 What the Revaluation Wizard does

The Foreign Exchange Revaluation Journals Wizard does the following:

  • Enables users to revalue foreign Bank, Supplier (Vendor), and Customer accounts as part of the month/year-end process.
  • Provides easy access to the currency maintenance functions to enable updates of period-end exchange rates.
  • Enables the user to view, or export to Excel, the account adjustment details prior to posting.
  • Enables the user to automatically adjust the base currency value of any foreign currency bank, debtors, and creditors accounts based on the period-end rates, while the foreign currency balance remains the same.
  • Automatically generates the General Ledger journals to post the gain/loss to the relevant control accounts, and the unrealised exchange gain/loss account in the General Ledger. 
  • Posts a reversing journal to accrue for a gain/loss as if you had settled the Account right now. This automatic reversal after the period-end allows you to recalculate the Unrealised Gain/Loss each period based on the most up-to-date rates.
  • Includes the revaluation amount in any aged debtors or creditors reports to allow reconciliation with the relevant control account in the General Ledger.
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Generating a Revaluation Journal 

Step One: Select  Account types to Revalue and the Period Date

  1. In the blue banner, go to GeneralForeign Exchange Revaluation Journal.


     
  2. Tick the types of accounts you want to revalue. Decide whether it is appropriate to revalue your Bank & Loan, Foreign Customer, and Foreign Supplier (Vendor) accounts individually, or collectively. 


     
  3. In Select Period End date for Journals, select which period you want the revaluation journals to post to. This will determine the FX rates that will be used to calculate the gains/losses and the period the revaluation journals should be posted to.
  4. Click Current Unrealised Gains/Losses Account: **** click here to modify it. This opens the Codes Maintenance: System Accounts screen with the GL Account currently flagged as the Unrealised Gains/Losses Account. This will determine the Balance Sheet account where the unrealised gain/loss journal resulting from the revaluation is posted.


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    The Revaluation Wizard displays the GL Code of the Unrealised Gains/Losses Account. It will differ depending on your own chart of accounts.






     
  6. The system includes a required Account Type for Unrealised Gains/Losses. You can associate this account type with whatever GL Account you want. Use the dropdown to associate the Unrealised Gains/Losses account with the correct General Ledger account. This determines which Profit & Loss account the unrealised gain/loss journal from the revaluation will post to. Click Save. This returns you to the Revaluation wizard.
  7. Back in the Revaluation wizard, click Next to open the Currency Period End Rate Management screen.

Step Two: Set Period-End Exchange Rates

Next, you must set period-end exchange rates for each foreign currency. For example, if you are in October and using October exchange rates for day-to-day transactions, you may want to revalue your September transactions from your foreign currency accounts at the rate for the end of September. 

  1. Click Edit beside each currency and record the exchange rate for the chosen period-end.
  2. Click Next to open the Revalue Balances screen.

Step Three: View Current Unrealised Gains/Losses

This screen will list the accounts to revalue up to the revaluation date shown depending on the type of accounts chosen (Bank, Supplier (Vendor), or Customer). 


The following fields appear in the grid:

  • Account Type: This states whether the account is a Bank, Customer, or Supplier (Vendor) account.
  • Account Code: Bank, Customer, or Supplier (Vendor) account code.
  • Account Name: Bank, Customer, or Supplier (Vendor) account name.
  • Currency: Currency code associated with the account.
  • Exchange Rate: The period-end exchange rate used for revaluation. 
  • Posting A/C: This is the GL Account code that the revaluation journal will post to (the Bank, Debtor, or Creditor Control Account GL number).
  • Foreign Balance: This is the foreign currency balance up to the period date.
  • Base Balance: This is the current base currency balance as calculated with the day-to-day posting exchange rates. The base currency code appears in brackets in the column heading.
  • Revalued Balance: This is the revalued base currency balance calculated from the updated period-end exchange rate.
  • Gain/Loss: This is the foreign exchange gain/loss based on the updated exchange rate. This is the value (positive or negative) that you will need to adjust.

The Creditors and Debtors Ageing reports, when run in base currency, update to reflect the currency revaluation adjustments. This ensures that the totals still correspond with the relevant control accounts.

 

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Tip

You have the option of exporting the contents of the grid to Excel by clicking Export. This is useful if you want to have a record of the revalued accounts or to perform any further checks prior to creating the journals

 

Step Four: Generate and View Revaluation Journals

After you have examined the accounts and the revaluation amounts calculated, click Generate Revaluation Journals to generate the postings to the General Ledger. 
 

You will receive a confirmation message when the journal is complete. A link (Click to view processed Revaluation Journal) at the bottom of the screen will open the Transactions Browser. You can search revaluation journals at any time in the transaction browser by entering ’reval’ into the search box in the Ext. Ref. column.

Revaluation General Ledger Debit and Credit Journals 

Unrealised gains/losses are posted as reversing journals and therefore are reversed automatically at the start of the next period. This recognises the expected gain/loss at that point of time, some of which will be realised in the following period. It allows for the recalculation of the Unrealised Gain/(Loss) in each period based on the outstanding balances and exchange rates applying at that point.

If the adjustment is positive (increased debtor or reduced creditor amount):

  • A Debit General Journal (GD) for the difference is posted to the relevant control account.
  • A Credit General Journal (GC) is posted to the defined Unrealised Gains/Losses Account.

If the adjustment is negative (reduced bank/debtor, or increased creditor balance):

  • A Credit General Journal (GC) for the difference is posted to the relevant control account.
  • A Debit General Journal (GD) is posted to the Unrealised Gains/Losses control account.

Revaluation General Ledger Journals Details

Revaluation General Ledger (GD/GC) Journals are posted with the following details:

  • GL Account No: This will either be the Bank, Debtor, or Creditor control account. This enables you to trace where the gain/loss originated from. The other side will be the Profit & Loss Unrealised Gains/Losses account.
  • Date: The period date the journal is posted to and the next reversal period.
  • Ext Ref: ‘REVALUATION’ and internal reference concatenated.
  • Department: Blank.
  • Description: “Foreign Bank Revaluation Journal” with the appropriate currency code and revalued exchange rate appended to the description for reporting purposes.
  • Tax Code: N/A
  • Amt: The foreign currency transaction amount will be ‘0.00.’
  • BC Amt: The revaluation amount field.
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Info

You cannot edit the revaluation journals via the transaction editing screen once created. To cancel journals, you can reverse them. If the wrong revaluation rate was used, you can re-generate a new journal. Any prior journals for the period will automatically be reversed for you.

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Using Aging Reports to Revaluate Control Accounts

The Aged Creditors and Debtors (Summary & Detailed) Reports facilitate reconciliation with the Aged Creditors or Debtors control accounts as reported in the Trial Balance.
 

When you run an Aging Report in base currency for a period in which there is a balance in the Unrealised Gains/Losses account, the report will include the unrealised gain/loss for the period and will add that to the overall creditors or debtors Balance. This will enable you to arrive at the total for reconciliation with the Debtors or Creditors control account as reported in the Trial Balance.

Aged Creditors and Debtors Report Example

In the example below, the total Aged Debtor balance at the end of September is €2,014,006 as per the Aged Debtors report. In this period, there was an unrealised gain of €77.75 after revaluation of the customer accounts. This represents a Debtors control total of €2,014,083.99 for reconciliation with the Debtors control total in the Trial Balance for September.
 



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