Exhange Rates

Exchange Rates

Exchange Rate Variances

If you are not familiar with the effects of exchange rate variances, and the need to account for them, you should discuss this aspect of the system with your accounting prior to proceeding.

The system considers 2 types of variance:

1. Exchange Rate Variance
The variance is a result of the exchange rate used for calculating invoice/credits being different from the exchange rate used for the receipt.

Example:
Invoice $1500 @ 1.50 = £1000
Receipt $1500 @ 1.40 = £1071.43 (a gain of £71.43)

There is no ($) debt left after the receipt but there is a balance when converted to base (£71.43), this balance needs to be written off.
Unprinted/proforma items are not included in any calculation.

2. Exchange Rate Revaluation
The variance is a result of revaluing, in effect, the outstanding foreign currency transactions at a new exchange rate.

What are the benefits of using the system?
The variances are automatically calculated by the system via a batch run (typically run at accounting period ends), and included in the nominal ledger posting summaries.
Users can enter receipts using daily commercial exchange rates rather than system rates, which may not be representative of the true situation.

Example:
Student owes £1000 but wishes to pay in US$.
Using system rate: $1400 @ 0.7 = £980
Using a commercial rate: $1400 @ 0.68 = £952

At a minimum, revaluations are necessary for year-end purposes, but users are recommended to consider completing a revaluation at each accounting period end.

Can this part of the system be switched off?
Yes, but if you use the nominal ledger posting reports in your base currency, for accounting purposes, you will not be able to balance your "ledger debtors" in your nominal ledger if you revalue you accounting records but not Class!

Exchange rate variances can only occur on foreign currency accounts.

Computing Exchange Rate Variances
This can be done by the system automatically and it is recommended that the "Exchange Rate Variance" run and the "Revaluation" run are done together at the end of each accounting period by simply selecting the Revaluation option.
This will always calculate and record the Exchange Rate Variances regardless of whether the Revaluation run is provisional or not.

You can process the "Variance" run separately but it is only Provisional and does not write away the information.

There is no need to a "provisional" run once you are familiar with the process.
It is important to note that the Variance part of the Revaluation run will always be committed even if "provisional" is ticked.

A transaction for both types of variance is created for each account.
Excel reports are produced showing the variances.
The values are included in the Nominal Analyses for the period.

Accounting Issue :
It is suggested that the 2 variances are recorded under a single heading within the accounts, as splitting them has little value.

Exchange Rate Variance Report

Revaluation Report

Reprint

Select a report for reprint and enter the batch number.
Batch numbers are shown against exchange rate transactions.