Currency conversion - Journal Entry

[faisal892]

Dear all,

If a company has USD and Rupee bank accounts and it transfer USD 1000 from its USD account to its own Rupees account. What journal entry is to be passed.

Regards

Faisal.

[awaisaftab]

Just keep a dummy or contra account cash/asset accout in your ledger to transfer the difference in the dollar's rate and to show it in ballance sheet. Because you cannot show the ballance of dollars in balance sheet in terms of dollars. It must be transfered in terms of rupees for the purpose of financial reporting.
If you transfer $ 1000/- in rupee account and dollar rate is Rs 81/-

Rupee A/C ========= Dr.81,000/-
Dollars A/C========= Cr. $1000
Dummy or Contra A/c==== Cr. Rs 80,000/-


If any Bank Charges Deducted on conversion or transfer then following entry shall be passed.

Rupee A/C ========= Dr
Expense A/c=========Dr.
Dollars A/C========= Cr.
Dummy or Contra A/c==== Cr.

[tariqab]

Dear

Now-a-days some companies are using Multiple currencies in ERP based accounting system, where transactions level forex rate are fixed as a base rate or flexible field as per requirment and at balance sheet currency differences are charges to Unrealized Forex Gain/(Loss).

For Example your company has purchased raw material with cost of 1,0000 US$ on Credit(LC) that time rate was 1US$=79PKR.

Transaction Level Difference

Dr.=========Materials/Inventory/Purchase------->1000x79 79,000
Cr.============Supplier/AP/Creditor-----------------------> 79,000

While making payment rate is 1US$=80PKR.

Dr.=========Supplier/AP/Creditor-------> 79,000
Dr.=========Realized Forex Loss---------> 1,000
Cr.============Bank Account-----------------------> 80,000

Balance Sheet Level Difference

Maitaining Foreign current account Like Dollar a/c

Suppose in your books one dollars showing balance of 195,000PKR.(US$ 2,500)

as of balance sheet date= 01US$=80PKR
For forex adjustment we have to pass following entry.

Dr.===========Bank Account account (80-78)x 2,500---------> 5,000
Cr.==============Unrealized forex Gain-----------------------> 5,000

In your case as per my understanding

Dr.=========PKR account------->1000x80 80,000
Cr.============US$ Account------------------>1000x80 80,000

and at the end or balance sheet date you will book Unrealized forex gain or loss for this dollar account.

I hope you will get some idea from above intances.

Regards
Tariq