[Anonymous]

Jan 1 – A company buys euros : 2000 dollars for 1500 euros (1 dollar gets you .75 euros

Feb 1 – The same company buys equipment for 1000 euros (But at Feb 1, 1 dollar gets you .80 euro) (the value of the dollar has increased.

Dec 31 – 1 dollar gets you .60 euros

What Journal Entries should I use to record each of these events and at yr end?

Is there a foreign exchange transaction loss at yr end?

I appreciate any help anybody can provide me with individual foreign exchange transactions or any supplemental material recommendations for this topic

Thank you

[anonymous]

As you put it there wouldn't be a forex loss at year-end. Why? Because the transaction wasn't drawn out over time (with a receivable or payable) to give time for the currency to change in value.

Pretend you had a payable

dr – Equipment (1000 euro/.8 =) $1250

cr – Payable $1250

Then, later, you still owe that company 1000 euro, but the amount you're going to pay in dollars has changed. (1000/.6=1667) Now you have to pay more dollars than you would have if you had settled right away, so you need to book a loss.

dr – Foreign Exchange Loss (1250-1667) $417

cr – Payable (write it up since you owe more) $417

Whenever I have the basic foreign exchange problems, I always ask myself: what would have happened if I had settled it in cash right away? What is happening now? The difference between the two is your foreign exchange gain or loss.

Good luck!

REG -- October 3!!
FAR -- Pass
BEC -- Pass
AUD -- Pass

[Anonymous]

Thank you.

And what would be the J/E for Jan 1 when the company buys euros as an investment?

[Author]

Replies