Exchange Rate differences calculations

[former_member268870]

Experts,

I'm having difficulty understanding the Exchange Rate difference calculation, specifically 2 things:

• Why is it posting to the Bank ($750)
• Why is it updating the Inventory Account ($4250) and not the specific Item (via the Inventory account) where the Valuation Method is 'Serial/Batch". This caused my GL and Audit reports to not be aligned anymore.

Here are my steps with JE's created:

• LC = USD
• Vendor Currency = CAN

1. AP Invoice creation in CAN: (Exchange Rate 0.7)

• Debit: Inventory Acct: CAN $100,000.00 (USD $70,000.00)
• Credit: Accounts Payable: CAN $100,000.00 (USD $70,000.00)

2. Outgoing Payment in USD: (Exchange Rate 0.75)

• Debit: Accounts Payable: CAN $100,000.00 (USD $75,000.00)
• Credit: Bank: CAN $100,000.00 (USD $75,000.00)
• Debit: Currency Exchange Gain/Loss: USD $5,000.00

3. Exchange Rate differences utility - JE:

• Debit: Inventory Acct: USD $4,250.00
• Credit: Currency Exchange Gain/Loss: USD $4,250.00
• Debit: Bank : USD $750.00
• Credit: Currency Exchange Gain/Loss: USD $750

I would have thought that the Inventory will be increased by $5,000 for that specific Serial number. Why is the Bank Debited?

Regards,

Marli

[former_member268870]

I'm feeling like I'm missing something fundamental - Should this be an entry that is posted at Month End to be reversed the 1st of the next month?

[kvbalakumar]

Hi,

Please have a look at this link.

By the way, the resulting JE should be reversed at first day of next month. Exchange rate differences is used for reporting purpose.

Regards,

Bala