Every company dealing with either foreign clients or suppliers is bound to have some foreign currencies on their bank account. Normally by the bank you have separate accounts for those currencies meaning you literally have let’s say 100 USD and 500 EUR in the bank. However, on the balance sheet you can only have one currency, the functional currency of the company.

There are a few things that need to be considered here – the goal of keeping things clear and accuracy. First off on the balance sheet we suggest having separate accounts for all different currencies just to keep things clear and to avoid any messing up. There are cases when on the same bank account you can actually have more than one currency – especially on those cases we suggest having separate accounts on the balance sheet. Keeping things sorted on the balance sheet gives a good overview of the resources as well as enables you to see where you money standing in case of any fluctuating currencies being used.

The other thing that always comes into play with different currencies is the translation issue. Say you have 100 USD and 500 EUR on the bank account and on the balance sheet whereas the functional currency of the company is EUR. This 500 EUR can stay unchanged, however this 100 USD needs to be translated into functional currency of the company at the balance sheet date. As we said before, the 100 USD on the balance sheet are on separate account of course, but it’s not 100 USD, but the equivalent of it in EUR. The rate used, is the closing rate (preferably a national bank or similar) at the balance sheet date.

The 100 USD balance is translated into EUR and as such, the company will earn either profit or loss on translating the balance on every balance sheet date. Those gains or losses are all recognized on the income statement under ‘other operating income’ or ‘other operating expense’. Normally those profits and losses are not shown as a part of financial income or expense on the income statement.

So, do keep every currency on its own balance sheet account and remember to translate them at the right day and with the right rate.