Foreign Exchange Revaluation Explained: Example, Journal Entries, and Why It Matters

Monetary items typically include:

• Foreign-currency bank balances
• Trade receivables and payables in foreign currency
• Intercompany loans in foreign currency

Example (revaluing a receivable)

Base currency: EUR
Outstanding invoice: $10,000

• Invoice date rate: 1 USD = €0.90 → recorded value €9,000
• Month-end closing rate: 1 USD = €0.92 → month-end value €9,200

Revaluation impact:

• Receivable increases by €200
• FX gain of €200 is recognised in profit and loss

Typical journal (conceptual)

For an FX gain on a receivable:

• Debit Trade receivables (increase asset)
• Credit FX gain (P&L)

For payables, direction depends on whether settlement becomes more or less expensive in base currency.

Why it matters

FX revaluation ensures:

• Monetary balances are correctly stated at period end
• FX gains/losses are recognised in the correct period (avoiding large catch-up swings later)
• Close and reporting are more stable in multi-currency environments
• Management can see FX exposure and decide whether to change settlement timing, pricing, or hedging

FAQs

1. Which balances should be revalued?
   Foreign-currency monetary balances such as FX bank accounts, receivables, payables, and loans.
2. Is revaluation the same as translation?
   No. Revaluation updates balances inside an entity’s base currency books; translation converts whole statements into a group reporting currency.
3. Why do FX gains/losses appear before cash is paid/received?
   Because the value of the monetary balance changes with exchange rates at period end, even before settlement happens.

Find out how to manage foreign exchange risk.