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  • Writer's pictureEH Lim

The Exchange Gain/Loss, how it works?

How it works?

Assume that as of 31 May you had set the exchange rate for 1SGD to 0.8000USD (sing the month end exchange rate).

You recorded a USD bill (Purchase Invoice) as of 12 June for the amount of USD10,000, the base currency equivalent amount will be SGD12,500 (10,000/0.8000). The double entry for this Purchase Invoice transaction:

DEBIT Purchase 10,000

CREDIT USD Accounts Payable 10,000

DEBIT Purchase (exchange) 2,500

CREDIT USD Accounts Payable~~DEL (Exchange) 2,500

As of 30 June, you changed the exchange rate to 1SGD:0.7800USD. Since the USD Purchase Invoice is still outstanding, MoneyWorks will create an exchange journal for the unrealized exchange gain/loss automatically. The double entry for the exchange journal:

CREDIT USD Accounts Payable~~DEL 320.51

DEBIT Exchange Gain/Loss Unrealized 320.51

When the exchange rate changed from 1SGD:0.800USD to 1SGD:0.7800USD, there is an unrealized exchange loss of 320.51.

On the following month, as of 31 July, if the exchange rate has changed further to 1SGD:0.7900USD, MoneyWorks will create another exchange journal to correct the outstanding USD Accounts Payable.

Working: 10,000/0.8000 = 12,500.00 10,000/0.7900 = 12,658.23 Corrected Exchange Loss = 12,500 - 12,658.23 = -158.23 Therefore, the exchange journal amount is 320.51 - 158.23 = 162.28

The double entry of the exchange journal will be:

DEBIT USD Accounts Payable~~DEL 162.28

CREDIT Exchange Gain/Loss Unrealized 162.28

This will give a net unrealized exchange loss of 158.23 (320.51 - 162.28).

On 5 August, you paid USD10,000 to the supplier at the exchange rate of 1SGD:0.7900USD (exchange rate as of 31 July), the base currency equivalent will be SGD12,658.23. The double entry for the payment transaction:

DEBIT USD Accounts Payable 10,000 DEBIT USD Accounts Payable~~DEL 2,658.23

CREDIT Bank USD 10,000 CREDIT Bank USD~~DEL 2,658.23

DEBIT Exchange Gain/Loss 158.23

CREDIT Exchange Gain/Loss Unrealized 158.23

MoneyWorks reclassified the unrealized exchange loss of 158.23 to the exchange loss account automatically during the payment transaction.

MoneyWorks has simplified the exchange gain/loss process for the accountant. Unlike some of the accounting software, which you are required to pass the unrealized exchange gain/loss journal manually; MoneyWorks automatically did the necessary unrealized gain/loss adjustment for you once you have updated the exchange rate of the foreign currency.

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