Forums: Discussions for entrepreneurs and small business.

As reporting is done only in the home (native) currency, does this mean that any Income or Expense has to be designated in the native currency only, even if a transfer doesn’t actually happen?

 

For example if an entity`s home currency is USD and the same entity has a bank account in France in EUR. I understand that transactions will involve forex gains or losses. Suppose interest (an income) 10 EUR is received in this EUR bank account, how does this work?

Should the `Interest Income` account be in USD? In that case, when I receive an interest which is in EUR, I use some arbitrary exchange rate of that day such as 1 EUR = 1.3 USD and show the profit as 13 USD?

Or, do I create a new Income account with currency EUR and show the profit as 10 EUR?

If you have the account on your balance sheet in USD then when you bring in the interest income it also should be in US dollars.  The difference between the original value and the current value plus or minus would go into an account called currency exchange differences or something like that. This could go up and down as this is where the flucuations in the currency exchange rate are recorded.  So in your example the full $13.00 would be interest income as this money is earnings on your investment. It would be recorded on the books in USD. 

Hope this helps.