I wish to know accounting of foreign exchange transactions. Request you all to guide me.
Mr. B purchases and sells goods in dollar currency. He raises sale bill and receives purchase bill in foreign currency and also receives and pays in foreign currency, say $.
Part A – Recording of Sale & Purchase transaction -
Suppose, he raises a sale bill on Mr. A of 100 $ on 05-03-12 (rate as given on RBI site is, say, 49.7958):
05-03-12 Mr. A ------ Dr Rs. 4979.58 (100*49.7958) To Sales Rs. 4979.58
On 31-3-12, bill is outstanding then, the entry will be for foreign exchange gain or loss. (say, if rate as on 31-03-12 is not published / available on RBI site, so we take earlier day rate. Say, rate available on 30-03-12 is Rs. 51.1565)
Since rate is higher than rate on 05-03-12, he has notional gain i.e. more receivable from Mr. A in rupee terms. So, the entry will be:
31-03-12 Mr. A ------ Dr. 136.07 [(51.1565-49.7958)*100] To Foreign Currency gain a/c. 136.07
Thus, as on 31st March, receivable from Mr. A will be Rs. (4979.58+136.07) = Rs. 5115.65.
We receive the payment on 16-04-12. Rate on 16-04-12 is say Rs. 51.659/-
Bank a/c ----- Dr 5165.90 To Mr. A 5115.65 To Foreign Currency gain a/c. 50.25
Similarly for purchases.
Part B – Receipts & Payment entries Secondly, I wish to know about receipts and payments done through Bank EEFC a/c, opened for recording receipts and payments in dollars.
Suppose, there are two entries in this account. One payment entry of $225 as on 05-03-12 and receipt entry of $335 as on 19-03-12.
Thus while passing entry for above two entries, we will convert above $ amounts on respective dates. (Bank commission is ignored) i.e. Rupee value of $ 225 = 225*49.7958 = 11204.055 (-) & Rupee value of $ 335 = 335*50.1245 = 16791.7075 (+)
Therefore net effect of above in Rs terms = 5587.6525 (+) as on 19-03-12 i.e. as per our Rupee accounting system, bank balance will be Rs. 5587.65
For bank, since it’s a foreign currency a/c, closing balance as on 31-03-12 will be $ 335-$225 = $110.
To match the bank balance as on 31-03-12, we have to show this as closing balance in rupee terms on 31-03-12. Therefore we will convert this at rate as on 31-03-12 and if same is not available on 31st March then as on 30-03-12 (is it correct?? Or as on 01-04-12) say rate is 51.1565.
Therefore closing balance as per bank as on 31-03-12 will be $110*51.1565 = 5627.215
Thus there is positive difference of Rs. 39.5625, which will be foreign exchange gain. We will pass journal entry for this as. Bank a/c ---------- Dr Rs. 39.56 To foreign currency gain a/c 39.56
I wish experts, friends to advise me whether my above understanding is correct or requires my attention to some of areas. Also share your views about accounting of foreign exchange transactions.
CAclubindia
