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FOREIGN CURRENCY

Chilufya Ng'onga's Profile

I have got a situation here. My balance sheet and trial balance are balancing well. But there seems to be a problem with the cashflow statement. I believe the foreign currency account is the reason for the discrepency..Its not an account of a subsidiary but just a business account in a foreign currency.Please help me understand foreign currency translation n my situation.

Answers

David OBrien
Title: Treasury Consultant
Company: EE Treasury
(Treasury Consultant, EE Treasury) |

Chilufya:

We need to "walk" your process in order to ensure we are both on the "same page". Please correct any misunderstanding.

**Monthly you mark to market the value of assets & liabilities in non-functional currencies.
**Monthly you mark to market the realized value of any foreign exchange hedges against the non-functional currency balances
**The net gain/loss resulting from the above is charges to the P&L

With the above, the assets, liabilities and P&L are adjusted for foreign exchange gains/losses and should balance in the Statement of Cash Flows.

You use the term "foreign currency account". Is this a bank account in a non-functional currency? Or what??

David

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

David -

While you absolutely correct as to the need to markup/down the FX account vs function account, I don't believe that would cause an error in the Cash Flow.

Why; again based upon the info provided, the BS & Trial BS are balancing (assumption here that an account isn't zeroing out). Since the Cash Flow comes directly from these accounts, even if the FX account is "wrong", the Gain/Loss account is out by exactly that much.

Again, I'm talking the Cash Flow working, not being technically correct (FX gain/loss).

Errors can be large movement in fixed assets not being correctly identified, depreciation and other non-cash items, the aforementioned error in coding transactions.

Wayne

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