help with foreign currency management

Good evening all,

I run a small business online and i list products in both US and Canadian currency. I am also using Paypal for payment but the funds are drawn in US currency.

My question is if someone buys a product in US currency in order to properly reflect my monthly income report should i convert the us amount to canadian currency for accounting purposes and to get a more realistic view of my profit and loss

Alain

Reply to
Alain
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If you are in Canada, filing Canadian tax returns, then YES. You should do your accounting in Canadian currency.

realistic

Reply to
!-!

Since, I believe, you are in Canada, I think you would need to convert the US dollars to get a more accurate picture of your profit.

Wayne Brasch

Reply to
Wayne Brasch

Reply to
Alain

How about an account called Gain or Loss on Conversion?

Wayne Brasch

Reply to
Wayne Brasch

Alain, any reasonably correct procedure to record foreign-currency transactions is rather complicated. Some bookkeeping programs (QuickBooks Pro or Premier, some versions of Simply Accounting, for example) will do most of the work for you in a fairly simple manner. Without such a tool you should consult your accountant for assistance setting up and understanding a procedure that will work for you - something that will give you the information you need to run your business (including paying your taxes), and will not be more complicated than absolutely necessary.

Wayne mentions an account called "Gain/Loss on foreign exchange". That is indeed ONE part of any foreign-currency accounting procedure, but it may not be sufficient. I respectfully suggest that you should get face-to-face advice from a competent professional accountant rather than risk confusion or worse from incomplete and/or contradictory information here. And I don't mean that Wayne's advice is wrong, just that ANY advice from newsgroups may not be appropriate for your specific needs with respect to an issue that may be more complicated (or not) than you realize.

supplies as

Reply to
!-!

i've done multiple currencies and wayne's advice is just fine. have one f/x (foreign exchange account) to record, you can even set up a paypal account to record payment costs to them. if, for example, a client pays you 500$ USA via paypal, the f/x at that point in time means you have 625$ CDN, and paypal charges you 10$ so your final revenue is 615$ CDN.

500$ goes to the revenue account. 125$ goes to the f/x account (loss) goes to the paypal account. there's nothing mysterious about any of it. very straightforward.

Reply to
dorian

Yes, that's a very straightforward method often used by those with no accounting training.

It's also incorrect. It may make little or no difference in the end, but it's wrong. It makes no distinction between the Canadian client who pays CAD$500 and the US client who pays US$500, so most of your reports will be misleading.

If you don't rely on any of your QuickBooks reports and are prepared to attempt to explain your wrong methods to potential tax auditors, that's fine. It ***IS*** a simple and non-mysterious method that many are satisfied with.

If you would prefer to do it more correctly and have financial reports that might be useful, consult a competent professional accountant with appropriate experience to determine an appropriate method for your business.

manner.

assistance

procedure,

appropriate

Reply to
!-!

So how do propose to do it? Would you please explain instead of just saying something or somebody is wrong? Make a positive statement not a negative one, please.

Wayne Brasch

Reply to
Wayne Brasch

My positive statement was a recommendation to consider getting competent professional advice. That's not a "negative statement".

The correct result in the example transaction is sales revenue CAD$625, not $500. This doesn't change the bottom line, but it sure makes a difference to the profit margin and decisions about pricing.

Exactly how I would do it would depend on several factors such as

- Accounting software. The Canadian multicurrency versions of QuickBooks and MYOB, for example, operate quite differently.

- Relative transaction volumes in each currency. A relatively large number of foreign-currency transactions probably requires a more "automated" procedure, while a smaller number might be handled differently.

- Whether US currency transactions are converted immediately to Canadian currency, or later.

- Whether bookkeeping is performed frequently (daily, for example), or periodically (monthly).

- Size of the business.

I didn't propose specific procedures because Alain hasn't provided any of this information. Your method MIGHT be perfectly satisfactory as I said previously, or it might be inadequate.

client

prepared

auditors,

Reply to
!-!

well ouch. there are any number of ways it can be recorded, depending on how the g/l accounts are set up. as to which co's are paying in us$, per my own experience, american co's pay in american cheques - they don't go to the trouble of using cdn$ bank accounts. doing it your way means setting up a u.s. revenue account, recording us$ cheques into this account, with actual difference f/x into the f/x account. complicates everything. let's just keep debating the entire issue. it's pointless and it wastes all our time. and ps - as far as having no training, my response is simple: stfu you don't know what you're talking about. d

Reply to
dorian

At first glance your msg appears to be a response to mine. But, if so, you misrepresented what I said.

Anyway, I agree with you about several things:

- There are a number of ways to record multicurrency transactions. That was one of my points.

- US customers typically pay in US dollars. Not sure why you mentioned this, I didn't realize it was an issue.

- Further debate is a waste. That was also my point.

client

prepared

auditors,

straightforward.

foreign-currency

Accounting,

exchange".

accountant

Reply to
!-!

Finance and operations need to be seperated. Use a contra-cash account to lower or to raise your dollar holdings as they change in value. Then convert the net ammount into canadian dollars and add to canadian cash balance for your reports.

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Reply to
cohen.neal

Finance and operations need to be seperated. Use a contra-cash account to lower or to raise your dollar holdings as they change in value. Then convert the net ammount into canadian dollars and add to canadian cash balance for your reports.

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Reply to
cohen.neal

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