What are the Key Rules of Multi-Currency Accounting?

It ensures:

• Documents can be raised in transaction currency
• Amounts are converted to base currency consistently
• Realised and unrealised FX differences are captured correctly
• Foreign-currency bank and control accounts reconcile reliably

Core concepts

• Base (functional) currency: the entity’s primary reporting currency
• Transaction currency: the currency of an invoice, bill, or payment
• Unrealised FX: FX movement on open items revalued at period end
• Realised FX: FX difference when an item is settled at a different rate

Example: Unrealised, then realised FX

Base currency: EUR
Supplier bill: $5,000

1. Bill recorded:
   

• Bill date rate: 1 USD = €0.90 → payable recorded at €4,500

2. Month-end revaluation (bill unpaid):

• Closing rate: 1 USD = €0.92 → payable should be €4,600
• Unrealised FX loss = €100

3. Settlement next month:

• Payment rate: 1 USD = €0.91 → payment equals €4,550
• Payable was sitting at €4,600 after revaluation
• Realised FX gain on settlement = €50

Why it matters

Multi-currency accounting improves:

• Accuracy of profit and balance sheet in multi-currency trading
• Reconciliation quality for FX bank accounts and payables/receivables
• Visibility of FX exposure (so it doesn’t hide in margin noise)
• Close speed by reducing spreadsheet-based FX workarounds

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1. Do we need multi-currency accounting for low FX volume?
   Often yes—FX mismatches can still cause reconciliation issues and inaccurate profit if rates are inconsistent.
2. Where do FX gains and losses appear?
   Typically in the income statement as FX gain/loss, sometimes split by realised/unrealised depending on reporting preference.
3. What’s the most common mistake?
   Inconsistent rate usage and failing to revalue open monetary balances at period end.

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