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Let’s walk through the process of creating a Billing and taking a Cash Receipt in a foreign currency. The flow of processing Billings is very similar to that used in a single currency environment.
Create Billing in a Foreign Currency
- Billing currency is Euro
- Corporate Currency is Belize dollars
In this example, we will have created a Billing for EUR 4,000. You will notice that there are two new fields on the right-hand side for Currency Conversion Rate and Ledger Amount. This conversion rate is pulled from the Dated Exchange Rates table whose set up is described in the Adding Currencies and Exchange Rates Multi-Currency Configuration knowledge article.
The ledger amount is the converted amount from the foreign currency to the corporate/base currency, in this case Belize Dollars, and this will be the amount posted to the GL. Note: If you do not see these fields, you may have to add them to the Page Layout.
If you are manually updating the exchange rate tables, it is a best practice to update these tables before creating a Billing. This way, the current exchange rate will be used. Also, a conversion rate can be entered directly into the Billing, which will override the exchange rate tables.
Create a Cash Receipt
Once the Billing is posted, we need to receive a payment towards it. Follow the usual steps for a Cash Receipt, but make sure the currency is the same as billed.
Again, it is best practice to update the exchange rate tables before receiving a payment so the current exchange rates are being used. Also, a conversion rate can be entered directly into the Cash Receipt, which will override the exchange rate tables.
When applying the Cash Receipt to a Billing, the currencies must match. Only Billings in the currency recorded on the Cash Receipt will be shown. So in this case, only open invoices in Euro will be available for cash application.
Understanding Realized Gain/Loss on Currency Exchange
A realized gain or loss on currency exchange happens when the currency exchange rate on the day the customer was billed is different from the day cash was collected from the customer.
Accounting Seed will automatically calculate and record realized gains or losses for you. These will be posted to the default “Realized Gain/Loss on Foreign Currency” expense GL Account that is set up in Accounting Settings.
For example, you will notice that the Billing Cash Receipt Transactions related list shows three lines. We billed at an exchange rate of .85 but received the Cash Receipt at an exchange rate of .95. This gives us a 495.35 difference, which will automatically post to the “realized gain/loss on foreign currency” expense GL Account.