The scenario:
Company A in Malaysia send goods to their customers in Singapore and billed them in Malaysian Ringgit (RM). However, the customers paid in Singapore Dollar (SGD). Sometimes the customer may end up paying slightly lesser or more due to fluctuation in currency rates. To record gain and loss due to the currency rate, you will have to record the customer’s payment in a slightly different way.
The invoicing module in TreezSoft cloud accounting allow different currencies and the rate is updated according to the rates given by Bank Simpanan Malaysia (BSN). However, payment received have to be registered using the same currency.
Hence, TreezSoft users may follow the steps below to register you’re the different currency paid and also to keep track of the possible gain and loss due to fluctuation of currency rates.
Firstly, create a cash and bank account and name it Clearing account in your chart of account. It is an account for you to convert the payment received (refer to Figure 1).
Figure 1: Creating clearing account in COA.
Then, create an invoice in your base currency and issue it to your customer as usual. The double entry will be the first row in Table 1.
|
Types of document registered
|
Debit
|
Credit
|
|
Invoice
|
1000
(Debtors)
|
1000
(Sales)
|
|
Bank – Cash Receipts
|
RM 998.35/SGD 330
(SGD Bank)
|
RM 998.35/SGD 330
(Clearing)
|
|
Receive Payments
|
1000
(Clearing)
|
1000
(Debtors)
|
|
Journal Entry
|
RM1.65
(Clearing)
|
RM1.65
(Realized Gain/Loss)
|
Table 1 shows the underlying double entries. Brackets show the respective accounts.
When you’ve received your customer’s payment in SGD to your foreign bank, record them as Cash Receipts under Banking module in TreezSoft. Accounts to deposit the amount to your SGD bank account and credit to Clearing account (refer to 2nd row in Table 1 and Figure 2 below). Please note that the amount entered should be in base currency or the same currency according to your invoice.
Figure 2: Cash receipt sample
Then, register the received payment, enter the Clearing account in the “bank account” column in receive payment screen (refer to Figure 3).
A double entry will be created, debiting the Clearing account and Crediting your debtors account (refer to row 3 in Table 1).
Figure 3: Registering receive payment
Lastly, create a new Journal Entry under General Ledger module, debit the difference due to currency rate to Clearing account and Debit it to Realized Gain and Loss account.
Figure 4: Journal entry example
The above steps are applicable to payment received in different currency as well.
By doing so, you can then easily keep track of all the gain and loss that result from fluctuation of currency rate. You will be able to see them in the Profit and Loss account.
You can read more on related topics in TreezSoft blog:
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