Foreign currency exchange

Anne HAnne H Just JoinedRegistered Posts: 4
Hi there
I have a new client who trades with companies outwith the UK and receives trading income in US dollars. He also purchases assets outwith the UK to use in African countries and is invoiced in US dollars.

Just before the £ started to devalue, he was invoiced for 2 vehicles in dollars. He held off paying for them for 5 months. By that time the £ had devalued so much he made a foreign currency exchange loss of approx. £20,000.

His problem was that he had insufficient funds in his us dollar a/c to pay the invoices when they were issued. Whilst he eventually managed to pay the face value of the invoices, he lost out in the exchange rate when transferring funds from his current a/c to dollar a/c to pay the invoices.

What would be the bookkeeping entries for the loss between both bank a/cs?

Nasty one here! Hope you can help!

Comments

  • groundygroundy Trusted Regular Registered Posts: 495
    The loss due to exchange rates is a debit to the P & L. I would usually include under finance costs as a seperate headed item.
  • Hasan.AhmetHasan.Ahmet Feels At Home Registered Posts: 87
    Currency Translation Losses/Gains P&L item.
  • oakleyoakley Feels At Home Registered Posts: 73
    If he deals in large foreign currency transactions in the future he could always look at hedgeing against currency movement, not always a good idea to try and make money through hedges, but a good idea not to lose money through them.
  • Anne HAnne H Just Joined Registered Posts: 4
    Many thanks for your replies
    Anne
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