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During month-end closing process, balances of the following accounts (if they are GL accounts maintained in foreign currencies (other currencies than the accounting currency) are revalued by using the current (month-end date) exchange rates. For example, revaluation involves GL accounts in the following sections:
- The Cash and Cash Equivalents section of COA: cash and bank accounts, the PDCs Received account.
- The Trade and Other Current Receivables section of COA: the Current Trade Receivables from Customers account, the Deposits Paid to Suppliers account.
- The Trade and Other Current Payables section of COA: the Current Trade Payables and Deposits from Customers accounts.
- The Staff Settlements (Liability) section of COA: the Staff Salary Settlements and Unpaid Employee Business Expenses accounts, the PDCs Issued account.
- The Staff Settlements (Assets) section of COA: the Prepaid Employee Business Expenses account.
Your organization may have foreign currency accounts in other sections of COA which also will be revalued.
The following example demonstrates how a bank account is revalued during the month-end closing.
Example.
On June 30, the bank account had a balance of 23,000 EURO; the exchange rate with respect to the accounting currency (UAE Dirham) was 4.40.
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The balance in the accounting currency is 101,200 Dirham.
On July 10, the organization received a lump sum of 15,000 EURO
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for a completed project. The exchange rate actual on July 10 was 4.42. The received sum in the accounting currency was recorded as
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66300Dirham. Current balance in the accounting currency becomes equal to 167500 Dirham.
During month-end closing process, the account balance is revalued in the accounting currency with the exchange rate of 4.45 in effect on July 30. The balance in the accounting currency is 169,100 Dirham.
The gain of 1600 Dirham is recorded. The gain is calculated as follows:
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169,100 - 167500 = 1600
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Notice that the data to GL bank and cash accounts are posted with the following information: Entity / Bank (Cash) Account / Currency. Records posted to GL accounts in the Payable and Receivable sections of COA such information includesare structured as follows: Entity , Company, Contract, and Document. For / Company / Contract / Document. Thus, for Payables and Receivables, the revalued balances and gains/losses are calculated at the document level. For accounts from other sections of COA, the related information the structure of the account balances depends on the COA section.
Gain or loss resulted from exchange rate fluctuations for a document is calculated as follows:
1. The document amount is revalued based on the exchange rate of the foreign currency with respect to the accounting currency on the date of month end.
2. Gain or loss is determined as the difference between the document amount in the accounting currency on the month-end date and the document amount on the last revaluation date that can be the transaction date if the document was posted during the current month or the previous month-end closing date if the document was posted earlier. If the difference is greater than 0, the gain is recorded; otherwise, the loss is recorded.
Exchange differences for Realized gains (losses) for transactions that were paid during the period are also calculated during the month-end closing, using the exchange rate on the date of payment.
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If the resulting sum is equal or greater than 0.005, the sum is posted to the default account selected in the Gains on Exchange Differences column on the Accounting > See Also > Default GL Accounts by Default form. You can use the same default "Gain" account for all entities, or you can select separate accounts for entities.
If the resulting sum is equal or less than -0.005, the sum is posted to the default account selected in the Losses on Exchange Differences column on the Accounting > See Also > > Default GL Accounts by Default form form. You can use the same default "Loss" account for all entities, or you can select separate accounts for entities.
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