The Revaluation Process

Foreign Exchange Revaluation lets you revalue your foreign bank, customer or supplier account balances using month end exchange rates to translate the balances into base currency. This can result in gains or losses:

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

Any realised gains and losses are posted to the relevant control accounts and the unrealised gains or unrealised losses accounts. In addition, a reversing journal is automatically posted after period-end to accrue for a gain or loss as if you had settled the account presently. This allows you to recalculate the unrealised gain or loss based on the most up-to-date rates in each period.

Impact on the Balance Sheet

A Balance Sheet reflects the financial position of the company at a particular point in time. Previously posted but still outstanding FX balances are likely to have fluctuated in value. As these gains or losses may not be real at this point in time, they are called Unrealised Gains or Losses. Let's look at an example:

• Initial Transaction: Supplier 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 £. 
• Impact of FX Fluctuations: 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 of £171.58, which is an unrealised gain to your company. This means if the company paid the Supplier at that point in time, it would have to pay £171.98 less than the original invoice.

Best Practices

Fluctuations in exchange rates usually represents a trend in the rate. It is good accounting practice to recognise gains or losses as they arise rather than waiting until the transaction is paid by revaluing any outstanding FX accounts on a period-by-period basis. The system facilitates this approach by using auto-reversing journals. 

See:

Unrealised FX Gains Losses (8.4) - AIQ Academy

Unrealised FX Gains Losses for Groups (9.2) - AIQ Academy

Step One: Select Account types and Period Date

1. Go to GL > Journal Manager > Foreign Exchange Revaluation Journal.
2. Optional: Click Current Unrealised Gains/Losses Account: **** click here to modify it.
3.  This opens the GL Account currently assigned as the Unrealised Gains/Losses Account.
   • The Account Type will be Unrealised Gains/Losses. This determines which Profit & Loss account the unrealised gain/loss journal will post to.
   • The Linked GL Account will determine to which Balance Sheet Account the unrealised gain/loss journal will be posted. This will be displayed on the Revaluation Journal. If needed, select a different account and click Save.
4. Select the account types to revalue - Bank & Loan, Foreign Customer, or Foreign Supplier. You may prefer to do each type one-by-one or all collectively.
5. 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.
6. Click Next.

Step Two: Currency Period End Rate Management

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

1. Click Edit beside each currency and record the exchange rate for the chosen period-end. The historical exchange rates carried on each transaction will not change. Instead, the new exchange rates will be compared to the historical exchange rates to calculate the Unrealized Gains or Losses Journals and their cancelling reversals. 

   Group Currency Management

   If you manage your currencies at group level, the currencies here will not be available for editing. See Using Multi-Company Consolidation and Managing Multiple Currencies for more details.

    
2. Click Next Step 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, or Customer). The following fields appear in the grid:

• Account Type: This states whether the account is a Bank, Customer, or Supplier account.
• Account Code: Bank, Customer, or Supplier account code.
• Account Name: Bank, Customer, or Supplier 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.

After you have examined the accounts and the revaluation amounts calculated, click Generate Revaluation Journals. You will receive a confirmation message when the journals are complete. 

View the journals in the Transactions Browser by clicking Click to view processed Revaluation Journal. 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 GL Debit and Credit Journals 

• 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.

The Transaction Details are as follows:

• Tran Date: The period date the journal is posted to and the next reversal period.
• GL Account: 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.
• Description: “Foreign Bank Revaluation Journal” with the appropriate currency code and revalued exchange rate appended to the description for reporting purposes.
• Amt: The foreign currency transaction amount will be ‘0.00.’
• BC Amt: The revaluation amount field.
• Tax: N/A
• BI Code: Blank.

The Aged Creditors and Debtors (Summary & Detailed) Reports facilitate reconciliation with the Aged Creditors or Debtors control accounts. 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 it and add it to the overall creditors or debtors Balance. This enables 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

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