Exchange Gain/Loss

Sevren

Hello - I am struggling to find the definitive answer of where best to report the exchange rate loss in the P&L - either within the gross profit or the overheads.

Everything is telling me that it should be in the COS yet Q/Books is having none of it !

Many thanks

groundy

I usually put it under finance costs on the P&L.

Sevren

Thanks Groundy - that would seem to be the way that QB is guiding/forcing me to do it so I will go with it - it's only this year that it obviously stands out like a sore thumb with the rates crashing.

Many thanks

Gianni

I'd probably put it as a seperate item after your overheads especially if it's only happened this year so an accurate comparison with previous year statements can be made.

Sevren

Gianni wrote: »

I'd probably put it as a seperate item after your overheads especially if it's only happened this year so an accurate comparison with previous year statements can be made.

Many thanks - the problem was that I was having trouble getting the accountants to confirm what they had done with it which was making it difficult for me to do some comparison reports - interestingly, I have now had a reply and find that in previous years it has gone above the line and been added to purchases !

Toffeemadblue

Our auditors have always wanted us to report the paper gain/loss on FOREX as a below the line expense but it has always seemed arguable to me as in our case as a wholesaler it is a cost of sales.

Gianni

I think the problem with reporting it as a cost of sale is it's not realised until the balance sheet date when you make the comparison and unless you do this monthly it's not matching revenue until a lump sum at year end (even then it's not associated with inventory). I also think it's better to show seperately to disclose how much of an effect exchange rates have had on the company as oppose it getting lost in cost of sales - what do you do if a gain is realised?

Also by and large accountancy packages do struggle to deal with exchange rates and any gross profit report would only generally show the purchase price + absorbed overheads and not the actual price as per exchange rate gains/losses. This would give a difference between the produced accounts and the systems report.

Toffeemadblue

Thanks Gianni,
That's seems a really good way of looking at it

ereid

Forex Posting

I have read your questions and reply and it has given my help revising, however, I have a sage invoice to post in euro's and cannot think straight in how to post it?
I set up the appropriate tax code but need to now how to post the invoice in its basic form? Hope you can help, please:confused1:

tripod333

hi,
is it a Purchase invoice or a Sales invoice?

ereid

Hi, it is a Purchase invoice

oakley

a EURO purchase invoice (with 0 VAT) would be posted as,

Cr AP - GBP at C&E exch rate (or your company exch rate if agreed by C&E)
Dr Stock/Expenses

when you pay the invoice,

Cr Bank - exch rate at pay date
Dr AP - offset Cr above
Dr/Cr profit/loss on exchange

If you have a EURO invoice with VAT, then you claim the GBP equivalent VAT shown on the invoice.

tripod333

Hi, You will need to set-up a Exchange Rate Loss/Gain Profit/Loss code.
The invoice is posted in Sterling on your accounting system as follows:

Check exchange rate for date of invoice and calculate.
example:
CR Purchase Ledger Control (£100)
DR Expense Code £100

Exchange rate will fluctuate between invoice posting date and payment date:
When paid from the bank with a gain:
CR Bank (£98)
DR Purchase Ledger Control £98
DR Purchase Ledger Control £2
CR Exchange Rate Loss/Gain (£2)

Copy and paste link for historic exchange rates and check the "Daily" box and click show data button near top of page.
http://www.bankofengland.co.uk/mfsd/iadb/index.asp?Travel=NIxIRx&levels=1&A3801XBMX3790X3791.x=7&A3801XBMX3790X3791.y=6&FullPage=&FullPageHistory=&Nodes=X3790X3791X3873X33940&SectionRequired=I&HideNums=-1&ExtraInfo=true#BM

ereid

Many thanks to you both

ereid

Just another question about VAT, the invoices are for EU countries, to reclaim will it just go on the normal VAT return in the EC boxes? Thanks

oakley

If the VAT invoices are not from the UK but from an EU country they should have 0 VAT on them provided you have given them your VAT number, if they are UK invoices in Euros you should just add the sterling equivalent as above to box 4.

ereid

Thanks Oakley, however the I have an invoice that has come in Euros, I am in the process of setting up a Journal sheet but at a loss as to process the VAT?

Gianni

If you have received an invoice in euros from a country in the EC but not in the UK and it has VAT on it you cannot claim the VAT on a UK VAT return. You will need to claim it from the origin countries VAT administration. The alternative is to ask the issuing supplier to amend the invoice and not charge VAT which is much simpler, not to mention better for cash flow (it can take a while to claim VAT from another country!).