In this guide 6 sections
Multi currency accounting records each transaction in the currency it happened in, stores the exchange rate and its source, and converts to the reporting currency. Differences between booking and settlement are posted separately, open balances are revalued at period end, and the original amount is never overwritten.
What a foreign currency entry actually holds
Every entry needs more than a total. It holds the transaction currency, the amount in that currency, the exchange rate, the source of the rate and the value in your reporting currency. Lose one field and the entry cannot be explained to an auditor.
Take a Canadian invoice for 4,000 dollars sent by a company reporting in rupees. The ledger shows the rupee value, but the customer owes Canadian dollars. Both numbers are real and both must stay.
Short rule. Store the original, derive the rest.
- Transaction currency and original amount
- Rate used and the date it applies to
- Rate source such as central bank file or bank quote
- Reporting currency value at booking
Realised differences appear when cash moves
You invoice on the first at one rate. The customer pays on the thirtieth at another. The bank credits a different reporting value than the receivable carried, and the gap is a realised exchange difference.
Software should post that gap to its own gain or loss account automatically on matching the receipt to the invoice. A bookkeeper who plugs the gap into sales or bank charges hides the cost of holding foreign balances.
Partial payments work the same way. Each part settles at its own rate, so the difference is calculated per receipt.
Unrealised differences and period-end revaluation
At month-end some invoices and bills are still open. Their reporting value was fixed at booking, yet today’s rate says otherwise. Revaluation restates open receivables, payables and foreign bank balances at the closing rate and posts the movement as an unrealised difference.
Most packages reverse that entry on the first day of the next period, so the real settlement difference is not counted twice. Check that yours does, and that the run can be repeated safely if a rate file arrives late.
Unrealised figures are paper movements. They still belong in the monthly accounts, because lenders and owners read the balance sheet.
- Closing rate table loaded before the run
- Open items listed by currency and account
- Automatic reversal on day one of the next period
- A report showing the movement per customer
Rounding differs by currency
The Japanese yen has no decimals. The Bahraini dinar has three. If the system rounds every currency to two places, line totals and tax totals will drift by small amounts that never reconcile.
Good design rounds at the currency’s own precision and decides where rounding happens: per line, or on the invoice total. That choice should match the tax rules of the country issuing the document, so ask your adviser before you set it.
Keep rate precision too. A rate stored to four places loses value on large invoices; six or more is safer.
Why an overwritten amount is lost for good
A common shortcut is to edit the invoice amount into the reporting currency when the rate changes. Once saved, the original foreign amount is gone, along with the rate that produced it. Nobody can tell whether the customer was billed in dollars or in rupees.
Software built for several currencies blocks that edit. Corrections go in as credit notes or adjusting entries, each carrying its own rate. The history stays readable for the auditor, the customer and the next bookkeeper.
Try this today: open your oldest foreign invoice and see whether the original amount and rate are still visible.
Currency record check sheet
A single page lists each foreign invoice sampled, one invoice to a row. Columns cover original currency and amount, rate, rate source, reporting value, settlement rate, realised difference and revaluation entry. A closing block lists currencies with decimal places.
Open a blank worksheet to printQuestions owners ask
Which exchange rate should I use?
Use the rate your accounting policy and local rules name, often a central bank rate for the date. Record the source on every entry. Your accountant can confirm the right choice.
Do I need a separate bank account per currency?
Not always. Holding balances in each currency makes the ledger cleaner because receipts match invoices directly, but conversion at the bank also works if the bank rate is recorded.
What is a reporting currency?
It is the currency of your financial statements, usually that of the country where the company is registered. Group companies may add a second one for the parent.
Can software fetch rates automatically?
Yes, from a central bank or data feed. Keep the downloaded file with its date, so any rate can be traced back to a source later.