In this guide 6 sections
An invoice raised at one rate and paid at another leaves a realised exchange gain or loss, booked when the receipt is matched to the invoice. Open invoices are revalued at period end. That gives an unrealised difference, which reverses later. Software records both only if every document keeps its currency, rate and rate source from the day it is posted.
Where the difference comes from
Take a shipment of brake pads billed in euros. On the invoice date one euro converts to a certain amount in your books, and six weeks later the buyer’s remittance converts to a different amount. That gap is the exchange difference.
It is not a sales discount. It is not a bank charge. Mixing it into either one hides what the foreign currency did to your margin on that order, and the sales manager never sees it.
The software needs two numbers for every invoice. One is the foreign amount, which never changes after posting. The other is the book value in your home currency, fixed by the rate on the invoice date, and both should stay visible on the invoice screen.
- Invoice amount in the foreign currency
- Rate on the invoice date and its source
- Book value in the home currency
- Receipt amount, receipt date and receipt rate
Booking the realised gain or loss on receipt
A realised difference appears the moment a receipt is matched to an invoice. The receivable is cleared at its original book value, the bank is debited at the amount actually received, and the remainder goes to an exchange gain or loss ledger.
Part payments need care. Each receipt clears its own share of the invoice at the invoice rate, and each one throws off its own small difference. Never average them.
Charges taken by an intermediary bank belong on a separate line. If the buyer remits less than the invoice, that shortfall should not quietly turn into a loss on exchange. Check the bank advice.
Revaluing open balances at period end
An unpaid invoice still sits in your receivables at the old rate. At month end or year end, the software restates it at the closing rate and books the change as an unrealised gain or loss against a separate ledger.
Most teams reverse that entry on the first day of the next period, so the real receipt books the full realised difference and nothing is counted twice. Test the reversal. It is the step people forget.
Run the same revaluation for payables. A supplier bill in dollars moves exactly like a customer invoice in euros, and importers who skip this half end up with period figures that lean one way.
- Customer invoices not yet paid
- Supplier bills not yet settled
- Advances received or paid in foreign currency
- Foreign currency bank balances
Record the rate source on every document
Auditors ask one question again and again. Where did this rate come from? Answer it on the document itself. A figure typed from memory, with nobody able to say which website, bank or newspaper it came from last March, will not survive it.
Store the source beside the rate. It may be a central bank reference, the bank’s own buying rate or a company rate table with an effective date. Store who changed it and when, too.
Agree one rule per currency. Keep to it. Invoices might use the company table, while receipts use the actual bank credit on the statement. Written down once, that rule settles most arguments at close.
Check the setup before the first foreign invoice
Create separate ledgers for realised and unrealised differences. Put the rate table under a single owner. Lock rates on posted documents, so that a later edit cannot shift an old balance without leaving a trace in the audit log.
Then test with one invoice of your own. Raise it. Part pay it. Leave the rest open and run the revaluation. After that, settle the balance and compare every ledger line with a hand calculation in a spreadsheet.
Ask your accountant to read the result before go-live. Keep the test invoice in the file.
Foreign invoice rate worksheet
Lay this worksheet out on a single sheet, giving each foreign invoice its own line. Columns: invoice number, currency, foreign amount, invoice date, invoice rate, rate source, book value, receipt date, receipt rate, realised difference and revaluation rate at period end. A second block lists each currency with its rate rule, its rate owner and the ledger codes for realised and unrealised differences.
Open a blank worksheet to printQuestions owners ask
What is the difference between realised and unrealised exchange gain?
A realised difference arises when money actually changes hands, so the invoice is settled by a bank receipt that you can see on the statement. An unrealised one is a paper movement on a balance that is still open at period end. It reverses once the receipt arrives.
Which rate should an invoice use?
Use the rule your accountant sets for that currency, such as a central bank reference or a company table, and apply it to every invoice in that currency. Record the source and date on every document.
Should payables be revalued as well?
Yes. A supplier bill in a foreign currency moves with the rate just like a customer invoice, and skipping it leaves the period figures one-sided. Importers feel this most.
Can the software fix old entries made at the wrong rate?
It can flag where a posted rate differs from the table. Corrections should go in as new dated entries, never by editing a posted document, so the trail of what changed stays readable.