Exchange Gain/Loss

Sevren
Sevren Registered Posts: 101 Dedicated contributor 🦉
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

Comments

  • groundy
    groundy Registered Posts: 495 Dedicated contributor 🦉
    I usually put it under finance costs on the P&L.
  • Sevren
    Sevren Registered Posts: 101 Dedicated contributor 🦉
    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
    Gianni Registered Posts: 99 Regular contributor ⭐
    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
    Sevren Registered Posts: 101 Dedicated contributor 🦉
    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
    Toffeemadblue Registered Posts: 102 Dedicated contributor 🦉
    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
    Gianni Registered Posts: 99 Regular contributor ⭐
    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
    Toffeemadblue Registered Posts: 102 Dedicated contributor 🦉
    Thanks Gianni,
    That's seems a really good way of looking at it
  • ereid
    ereid Registered Posts: 28 Regular contributor ⭐
    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
    tripod333 Registered Posts: 20 New contributor 🐸
    hi,
    is it a Purchase invoice or a Sales invoice?
  • ereid
    ereid Registered Posts: 28 Regular contributor ⭐
    Hi, it is a Purchase invoice
  • oakley
    oakley Registered Posts: 73 Regular contributor ⭐
    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
    tripod333 Registered Posts: 20 New contributor 🐸
    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
    ereid Registered Posts: 28 Regular contributor ⭐
    Many thanks to you both
  • ereid
    ereid Registered Posts: 28 Regular contributor ⭐
    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
    oakley Registered Posts: 73 Regular contributor ⭐
    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
    ereid Registered Posts: 28 Regular contributor ⭐
    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
    Gianni Registered Posts: 99 Regular contributor ⭐
    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!).
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