Receiving Payment in Foreign Currency

Transcription

1 Receiving Payment in Foreign Currency Contents An Example Preparing PCLaw for Foreign Currency Receiving Funds in Foreign Currency Performing Month End Procedures An Example To better illustrate the procedures for PCLaw 9 to 9.10, this document uses the following example. an invoice is created in domestic currency for a payment is received in foreign currency for the exchange rate at the time of payment is 1.147, creating an exchange of the exchange rate at the end of the fiscal period is Preparing PCLaw for Foreign Currency In PCLaw, a minimum of two additional bank accounts and two additional general ledger accounts are required to handle foreign currency. The following procedures are described: opening foreign currency bank accounts opening a foreign exchange bank account creating a foreign exchange gain/loss G/L account creating foreign exchange asset G/L accounts. Opening Foreign Currency Bank Accounts Options > Lists > Bank Accounts > Add button You can have multiple foreign currency bank accounts. Exhibit 1. The Add Bank Account window for creating new bank accounts 1. Select General Bank from the Bank Type drop down list. 2. Accept or change in the Lexis Back Office Account box, the bank account number. 3. Accept or change in the General Ledger box, the bank control account nickname. Note: The control or g/l account for the bank is automatically created. 4. Type in the Account Name box, a name for the foreign currency bank account.

2 5. Fill in the remaining Account Details as required. 6. Click OK to return to the Bank Accounts window. 7. Repeat this procedure for additional foreign exchange accounts that need to be created. 8. Click OK to create the foreign currency bank account and return to the PCLaw desktop. Opening a Foreign Exchange Bank Account Options > Lists > Bank Accounts > Add button A foreign exchange bank account is maintained within PCLaw only. Only one foreign exchange account is required, although multiple accounts can be used. Exhibit 2. The Add Bank Account window when creating a Foreign Exchange Bank account 1. Select General Bank from the Bank Type drop down list. 2. Accept or change in the Lexis Back Office Account box, the bank account number 3. Accept or change in the General Ledger box, type the control account nickname. 4. Type in the Account Name box, a name for the foreign exchange bank account. Note: Since this is an internal bank account, Account Details are not required. 5. Click OK to return to the Bank Accounts window. 6. Click OK to create the foreign exchange bank account and return to the PCLaw desktop. Creating a Foreign Exchange Gain/Loss G/L Account Options > Lists > G/L Accounts > Add button This accounts records the difference of exchange incurred when converting to domestic currency and reflects the difference as profit or loss at the time the transaction occurred. Exhibit 3. The New G/L Account window when creating the Foreign Exchange Gain/Loss account 1. Type in the Nickname box, the abbreviated name for the account. 2. Type in the Account box, the extended name of the account. 3. Select Expense from the Type drop down list. 4. Click OK to return to the G/L Accounts window. 5. Click OK to create the foreign exchange gain/loss g/l account. Receiving Payment in Foreign Currency Page 2

3 Creating Foreign Exchange Asset G/L Accounts Options > Lists > G/L Accounts > Add button This asset account records the difference between the funds of the specific foreign currency bank accounts and the amount actually realized in domestic currency. To avoid confusion, use the nickname of the bank s control account and add the letter a. For example, control account 1010 was created with bank account 10. Name the sub-account 1010.a. Exhibit 4. The New G/L Account window when creating the Foreign Exchange Asset account 1. Type in the Nickname box, the abbreviated name for the account, such as 1010.a. 2. Type in the Account box, the extended name of the account. 3. Select Asset from the Type drop down list. 4. Click OK to return to the G/L Account window. 5. Click OK to create the foreign exchange asset g/l account. Receiving Funds in a Foreign Currency The matter is billed in the domestic currency, while the payment is received in a foreign currency. The payment must then be converted into the domestic currency. This process involves 2 steps: receiving foreign funds at face value. receiving the exchange value. Receiving Foreign Funds at Face Value Data Entry > General Bank > Receive Payment Add a receive payment in the amount of the face value of the foreign funds. Exhibit 5. The Receive Payment window displaying a payment in foreign currency 1. Type in the Acct box, the nickname of the foreign currency bank account. 2. Type in the Amount box, the payment amount in foreign funds. 3. Complete the remaining boxes as required. 4. Click OK to post the payment. Receiving Payment in Foreign Currency Page 3

4 Receiving the Exchange Value Data Entry > General Bank > Receive Payment Enter a second receive payment for the amount of the exchange. Exhibit 6. The Receive Payment window displaying a payment for the foreign exchange value 1. Type in the Acct box, the nickname of the foreign exchange bank account. 2. Type in the Amount box, the exchange amount. (In the above example; 147) The exchange is calculated using the formula: (foreign payment x exchange rate) - foreign payment = exchange amount. In our example (1000 x 1.147) = Complete the remaining boxes as required. 4. Click OK. Note: Any balance still outstanding on the invoice after the exchange payment needs to be written down using the Change/Write Off Bill feature on the Billing pull-down menu. Performing Month End Procedures This topics discusses the following month end procedures with respect to the foreign currency and foreign exchange bank accounts: performing bank reconciliations calculating foreign exchange gain or loss at month/year end recording foreign exchange gain or loss at month/year end. Performing Bank Reconciliations Tools > Bank Reconciliation The bank reconciliation is performed on the foreign currency bank account in the same way as any domestic currency bank account. Enter all service charges and interest from the bank statement into the foreign currency account before beginning the bank reconciliation. Write a check or receipt out of the foreign exchange bank account, allocating the amounts between the foreign exchange asset G/L accounts for each bank. (these are the asset accounts created in Creating Foreign Exchange Asset G/L Accounts on page 3.) The check or receipt zeroes the balance in this bank account making a bank reconciliation unnecessary. Receiving Payment in Foreign Currency Page 4

5 Calculating Foreign Exchange Gain or Loss at Month/Year End Month end and year end procedures should always be done on the advice of your accountant. Realization of a gain or loss on foreign exchange can be done monthly or at year end. 1. Check the value of the foreign currency bank account(s) using the General Bank Journal. 2. Convert the value to the domestic currency using the current exchange rate. 3. Calculate the difference between the domestic currency value and the sum of the foreign currency bank account(s) and asset account(s) by using the following formula: (Foreign currency bank account balance x exchange rate) - (foreign currency bank account balance + foreign exchange asset G/L account balance) or using our example from page 1: (1000 x 1.135) - ( ) = Repeat this procedure for each foreign currency bank account and its associated foreign exchange asset G/L account. The sum of all accounts is the overall foreign exchange gain or loss. Recording Foreign Exchange Gain or Loss at Month/Year End G/L > General Journal > G/L Adjustment Use a G/L adjustment to record the gain or loss to the foreign exchange gain/loss G/L account. Exhibit 7. The Create G/L Adjustment window adjusting the gain/loss account 1. Select the Date of the G/L adjustment. 2. Accept or change in the Reference box, the adjustment reference number. 3. Select in the Explanation box, an explanation code or type an extended explanation. 4. Select in the first line of the G/L Acct column, the nickname of the foreign exchange gain/loss g/l account. 5. If there is an overall gain on foreign exchange: Type in the Debit column, the full amount of the gain. 6. If there is an overall loss on foreign exchange: Type in the Credit column, the full amount of the loss. 7. Select in the second line of the G/L Acct column, the nickname of a foreign exchange asset g/l account. 8. If there is a gain on foreign exchange for the associated bank account: Type in the Credit column, the amount of the loss attributed to this account. 9. If there is a loss on foreign exchange for this associated bank account: Type in the Debit column, the amount of the loss attributed to this account. 10. Repeat steps 7 to 9 for all other foreign exchange asset G/L accounts. Note: When the gain or loss for all bank accounts are entered, the Debit and Credit totals in the Summary section should equal and 0.00 appears in the Balance box. 11. Click OK to post the period end adjustment is posted. Receiving Payment in Foreign Currency Page 5