At the latest when the accounting is being closed, the values in Basic currency need to be revaluated by creating revaluation transactions of possible profits or losses due to the fluctuation of the exchange rates (for the theoretical aspects, please go to Revaluations and Exchange rate differences).
The Create transaction for exchange rate variation command (Account2 menu) creates revaluation transactions for all the accounts in foreign currency, so that the account balance in basic currency corresponds to the balance in foreign currency converted at the closing exchange rate.
Before proceeding, one should:
- Make sure that in the File and accounting properties (File menu, Foreign currency tab) the Exchange rate profit and loss accounts - where the exchange rate differences have to be recorded - are being indicated. It is possible to indicate the same account for the exchange rate profits as well as for the losses.
- Make sure that the accounts in foreign currency are updated and that the balance in foreign currency of these accounts corresponds to the balance indicated by the bank.
- Make sure that there are no transactions in foreign currency after the date of the calculation of the exchange rate differences (closing date or end of period). In fact, in order to calculate the exchange rate differences, the program uses the current balance of the account.
- In case you have already created exchange rate variation transactions for the same date, and afterwards you have modified and/or added transactions and you want to recalculate the exchange rate differences, it is better to delete the earlier created exchange rate variation transactions with the same date in order to avoid confusion.
- Update the current exchange rates of the Exchange rate table.
The closing exchange rates (or the ones of the end of a period) should be indicated in the rows without any date and column Exchange rate.
In fact, when calculating the exchange rate differences, the program uses the exchange rates from the rows without dates. When there are no rows without date, the program will indicate an error.
Do not modify the Opening Exchange rate.
- Execute the command Create transaction for exchange rate variation (Account2 menu).
The program asks for the date and adds the exchange rate variation transactions.
- The exchange rate variation transactions, as seen in the following image, have the Basic currency as its currency and have only the amount in Basic currency (for more information, go to Multi-currrency transactions).
- In the transactions, the date that has been entered earlier is being indicated (for the calculation of the amount, the current balance is being used in any case and not the balance at the indicated date).
Opening exchange rates of the new year
In order to have the new year's opening balances in basic currency correspond exactly with the closing balances of the preceding year, the opening exchange rates of the new year, indicated in the Exchange rate table, have to be the same as the ones being used for the closing, so:
- The closing exchange rates have to be indicated in the Exchange rate column of the rows without date.
- The opening exchange rates have to be indicated in the Rate Opening column of the rows without date.
The procedure to create a new year or to carry forward the balances of the preceding year copies the closing exchange rates (Exchange rate column, rows without date) of the preceding year into the opening exchange rates (Exchange rate table, Rate Opening column, rows without date) of the new year's file.