Background

Even before you make or take payment on international transactions, or withdraw money from a foreign bank account, there is the potential for changes in the exchange rate to affect the value of your transactions and accounts. This potential is referred to as an unrealized gain or loss. 

Example - If you have a bank account in London, and the value of your local currency drops compared to the British pound sterling, the value of your London bank account goes up. You have the same number of pounds, but those pounds are worth more in your local currency than they used to be. Since those pounds are still in your bank account, however, you haven't taken advantage of, or realized, their increased value.

Some, but not all, companies need to account for unrealized gains and losses; consult with your accountant if you're unsure whether or not you need to track this information for your business.

To keep track of your unrealized gains and losses, you'll have to print a report and then use information from the report to create a General Journal entry.

Initial Setup

In order to make the entries necessary to track unrealized gains and losses you need to create an expense account specifically for this purpose. You can speak to your accountant about the proper numbering/naming sequence for you - but the general instructions are:

1. Go to Lists > Accounts from the menu bar at the top of the screen
2. Click on the Expenses tab
3. Click on the New button
4. Pick a free account number and hit the tab key
5. Enter in the Account Name (ie: Unrealized Currency Gain/Loss)

Updating Currency Exchange Rates

In order to accurately calculate unrealized gains and losses for the current month, you must first update the currency's exchange rate to reflect the current rate. AccountEdge doesn't have the ability to automatically update currency exchange rates so this is a manual process. If you don't perform this step, your unrealized gains and losses will be misstated.

You can change a currency's exchange rate to its previous rate after you've recorded your unrealized gains and losses.

To change an exchange rate:

1. Go to Lists > Currencies from the menu bar at the top of the screen
2. Select the currency you need to change and click edit
3. Enter in the proper exchange rate

Accounting for Unrealized Gains and Losses

If you've spoken to your accountant and they've confirmed that you do need to account for unrealized currency gains/losses you first need to find the unrealized gain/loss amounts. To do so:

1. Go to Reports > Index to Reports from the menu bar at the top of the screen
2. Click on the Accounts tab
3. Scroll down until you see the bold heading Currency
4. Customize the Unrealized Gain/Loss report for the end of the month you are going to account for and click display
    

Once you have these numbers you can record a General Journal Entry to account for these.

Recording the General Journal Entry:

1. Go to the Accounts module and click Record Journal Entry
2. Enter the date for the entry (generally the last day of the month) and a description of the transaction.
3. Select the accounts and enter the proper debit and credit amounts as needed
4. Record the General Journal Entry
    

Selecting the Accounts

If the account is an asset account:

• If the Unrealized Gain/Loss Report shows a currency gain (positive amount) for a checking account or another asset account, credit the Unrealized Currency Gain/Loss account, and enter an equal debit amount for the exchange account associated with the asset account.
• If the Currency – Unrealized Gain/Loss Report shows a currency loss for the asset account, debit the Unrealized Currency Gain/Loss account, and enter an equal credit amount for the exchange account associated with the asset account.

If the account is a liability or equity account:

• If the Unrealized Gain/Loss Report shows a currency gain for a liability or equity account, credit the Unrealized Currency Gain/Loss account, and enter an equal debit amount for the exchange account associated with the liability or equity account.
• If the Unrealized Gain/Loss Report shows a currency loss for the liability or equity account, debit the Unrealized Currency Gain/Loss account, and enter an equal credit amount for the exchange account associated with the liability or equity account.

Creating a Recurring Entry

If desired, you can save the General Journal entry as a recurring transaction. By doing this, you'll save time when you record your unrealized gains and losses in future months. Follow these steps to save a recurring entry:

1. Go to the Accounts module and click Record Journal Entry
2. Enter the date for the entry (generally the last day of the month) and a description of the transaction.
3. Select the accounts and enter the proper debit and credit amounts as needed
4. Click the Save Recurring button; the Save Recurring Transaction window appears.
5. Enter a name for the transaction, then choose a frequency (Monthly is recommended) and the day on which you want this transaction to appear in the To Do List window each month. Click Record to save your entries and close the Save Recurring Transaction window.
6. In the Record Journal Entry window, click the Record button to record the transaction for this month (if you haven't already)

Reversing the Previous Month's Entry

When you track unrealized gains and losses, you make an entry for the current month, then reverse the entry you made in the previous month. It's important that you remember to reverse the previous month's entry; if you don't, gain and loss amounts for future months will be inaccurate.

To do so:

1. Go to Setup > Preferences from the menu bar at the top of the screen
2. Click on the Security tab and put a check in the box indicating transactions cannot be changed, they must be reversed.
3. Go to the Accounts module and click on the Transaction Journal button
4. Find the previous months entry and click on the arrow next to it
5. Select Edit > Reverse General Journal Transaction
6. Record the reversal

Once this is done you can change the Security preference (transactions can't be changed they must be reversed) so that you can once again delete transactions.

Notes:

• For realized gains or losses on sales and purchases, a posting is automatically made to the Currency Gain/Loss account.
• For realized currency gains and losses on transfers, deposits and withdrawals, you need to make a general journal entry to the Currency Gain/Loss account.
• The Currency Gain/Loss account is shown (linked) in Setup > Linked Accounts > Accounts & Banking Accounts window.