New episode for our FAQ Series! Before we get started on how to record the transactions, let's talk about what's realized gain/loss and unrealized gain/loss accounts.
Realized gain/loss
Referring to profits or losses from completed transactions. Record realized income or losses on the income statement. These represent gains and losses from transactions both completed and recognized in accounts.
Unrealized gain/loss
Unrealized gain/loss the vice versa, refering to profits or losses that have occurred on paper, which is also known as "paper profit" or "paper loss" but the relevant transactions have not been completed.
Recording realized and unrealized gain/loss in Treezsoft
When open transactions exist at the end of a period, the ending exchange or translation rate is used to compute the company's current exposure.
- If a negative (credit) variance exists between the beginning exchange or translation value of a transaction and the ending exchange or translation value of that transaction, the variance amount is posted to the Unrealized Loss account.
- If a positive (debit) variance exists between the beginning exchange or translation value of a transaction and the ending exchange or translation value of that transaction, the variance amount is posted to the Unrealized Gain account. These entries are reversed in the next period, and the process is repeated until the transactions are closed.
Important: Accounts Payable and Accounts Receivable reverse the unrealized gain or loss entries automatically the next time they perform an operation affecting the transaction. For transactions revalued in General Ledger, you must enter reversing journal entries manually.
Note: The General Ledger application does not post any entries to the realized gain or loss accounts. Accounts Payables and Accounts Receivables are the only applications using these accounts.
After the transactions are closed, the Accounts Payable or Accounts Receivable application calculates the actual gain or loss and posts it to the realized gain or loss account.
For a step-by-step guide to record realized and unrealized gain and loss, you can refer here.
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