Even before you make or take payment on overseas transactions or withdraw money from a foreign bank account, there is the potential for changes in the exchange rate to affect the value of your transactions and accounts. This potential is referred to as an unrealised gain or loss. For example, if you have a bank account in Paris and the value of your local currency drops compared to the French franc, the value of your Paris bank account goes up; you have the same number of francs, but those francs are worth more in your local currency than they used to be. Since those francs still are in your bank account, however, you haven't taken advantage of, or realised, their increased value.
Some -- but not all -- companies need to account for unrealised gains and losses; consult your accountant if you're unsure whether you need to track this information for your business.
To keep track of your unrealised gains and losses, you'll print a report and then use information from the report to create a Nominal Journal entry.
In order to accurately calculate unrealised gains and losses for the current month, you must first update the currency's exchange rate so it reflects the current rate of exchange. If you don't perform this step, your unrealised gains and losses will be misstated. You can change the currency's exchange rate to its previous rate after you've recorded your unrealised gains and losses. To learn how to update the currency's exchange rate, see To update foreign currencies.
When you track unrealised gains and losses, you make an entry for the current month, then reverse the entry you made in the previous month. It's important that you remember to reverse the previous month's entry; if you don't, gain and loss amounts for future months will be inaccurate.
Click below for the step-by-step procedure:To print the Currency - Unrealised Gain/Loss Report
To record unrealised gains and losses
To automatically reverse journal entries from the previous month
To manually reverse journal entries from the previous month