Transactions in foreign currencies

Transactions take place in foreign currencies, there’s nothing wrong about it. There’s in fact nothing uncommon about it. It is just about knowing what to do and when to do it. 

When it comes to foreign currencies in accounting, it is one thing to revalue balances nominated in foreign currencies as we will explain in another post, but another to treat transactions themselves, i.e. expenses you incur in foreign currencies.

Say for an example that you received a service that you’re required to settle in FCU (foreign currency unit). The price for the service was 100 FCU and your accounting is daily done in CU (currency unit). Whilst the payable is revalued at each balance sheet date (see another post for this treatment), the expenses itself is expensed using the exchange rate effective the day you received the service, the day the invoice issued relates to. And that’s it, you won’t be revaluing the expense when the exchange rate changes. The change is carried through revaluing the payable balance.

The same applies to all transactions, e.g. sales, expenses that you’re showing on your income statement. They’re always measured using the rate effective the day you received the service.