23 September 2021
One of my client is having a SEZ branch whose purchase and sales are in dollars. However, when accounting is done in tally it is done in foreign currency . When I will prepare Balance sheet, I will need to convert these figures into foreign currency, should the impact of foreign exchange difference be given? And also for bank accounts, should the impact of foreign exchange difference be given?
07 July 2024
When preparing the Balance Sheet for a SEZ branch where transactions are conducted in foreign currency (e.g., US Dollars) but accounting is done in Tally in the same foreign currency, you need to consider the impact of foreign exchange differences. Here’s how you should approach it:
### 1. Impact of Foreign Exchange Differences on Sales and Purchases:
- **Sales and Purchases**: Since your client's transactions are in USD but recorded in foreign currency (USD) in Tally, you should revalue these amounts at the closing exchange rate when preparing the Balance Sheet. Any unrealized gain or loss due to fluctuations in exchange rates should be accounted for. This ensures that the financial statements reflect the current value of assets and liabilities.
- **Accounting Treatment**: Use the closing exchange rate to convert the USD balances into INR (or reporting currency) for inclusion in the Balance Sheet. The difference between the initial exchange rate at the time of transaction and the closing rate results in a foreign exchange gain or loss, which should be accounted for appropriately.
### 2. Impact of Foreign Exchange Differences on Bank Accounts:
- **Bank Accounts**: Similar to sales and purchases, any bank accounts held in USD should be revalued at the closing exchange rate. This includes EEFC (Exchange Earners' Foreign Currency) accounts or other foreign currency-denominated accounts.
- **Treatment in Tally**: Ensure that Tally allows for recording transactions and maintaining balances in foreign currency. Tally should also support the calculation of foreign exchange gains or losses based on revaluation at the closing exchange rate.
### Accounting Entries for Foreign Exchange Differences:
- **For Unrealized Gain/Loss**: Create separate ledger accounts such as "Unrealized Forex Gain" and "Unrealized Forex Loss" in Tally. Adjust these accounts based on the revaluation of foreign currency balances at the end of the reporting period.
- **Example Entry**: - Unrealized Forex Gain A/C DR (if gain): Amount - To Unrealized Forex Loss A/C CR (if loss): Amount
### Compliance and Reporting:
- Ensure compliance with SEZ regulations and accounting standards applicable to your client's industry. - Properly document and disclose foreign exchange gains or losses in the financial statements and accompanying notes.
### Conclusion:
When preparing the Balance Sheet for your client’s SEZ branch, it’s crucial to revalue USD balances into INR using the closing exchange rate. This ensures accuracy in reflecting the financial position and complies with accounting standards. Properly accounting for foreign exchange differences helps in providing a true and fair view of the entity’s financial performance and position.
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