Description

SoftLedger has the ability to accept any fiat currency on any transaction, and convert that transaction to the reporting currency of the entity it is being reported in. This enables users to see balances in their Location's reporting currency, but book transactions in the currency that they are transacted in. Since there are fluctuations in the foreign currency exchange rates from one point in time to another, SoftLedger allows user to revalue their Ledger Account balances from these types of transactions when closing a monthly accounting period. Be sure to see the How do I revalue foreign currencies support article to learn how this works and the process to follow within SoftLedger.

Example foreign currency revaluation case

Eligible transaction toward a balance to be revalued

Let's walk through an example to help illustrate the use case and actions taken to revalue foreign currencies. See following details of a SoftLedger setup:

Location: US Enterprises

Location reporting currency: USD

Ledger Account: EUR Checking Account 110010

Ledger Account Type: Asset

Ledger Account Revalue Forex: TRUE

With the above setup, let's review the below transaction in EUR, within US Enterprises, using Account 110010:

Note: See that this transaction is made in EUR, in a Location with a reporting currency of USD, using an account set to revalue forex. With these things being true, the balance created from this transaction would qualify to be revalued at month end.

While this Journal was denominated in EUR by the transaction currency, SoftLedger will store the forex rate for January 15th, 2022 (transaction date) and be able to convert the result of this Journal Entry to USD (USD Enterprises reporting currency) to display USD balances in places such as Trial Balance, Financials, etc.

For this example, let's assume that the EUR to USD forex rate is 1:1 at the time of the transaction, meaning the 10 EUR used in the transaction is equal to 10 USD, so the balance for Ledger Account 110010 would be 10 USD when viewing in the USD Enterprises Location (assuming this is the only transaction).

Revaluation process and result

Assuming this is the only transaction for this account, let's review what would happen when closing the forex task in the accounting periods for January 2022. Within the Admin>Accounting Periods module, if the desired forex rate to use at the end of the month is EUR:USD of 1.1:1, then when closing the Forex Task this would look like this:

Once approving the above rates in the next tab and closing the forex task in accounting periods, they system would review the transactions for Ledger Account 110010 and create a reversing Journal Entry for January 31, 2022 to make adjustments so that all Journal Lines with Ledger Account 110010 are using the newly inputted forex revaluation rate of 1.1:1. The end result would look like this:

Forex Revaluation Journal Entry:

January 31st, 2022 Journal Lines

Dr EUR Checking Account 1 USD

Cr Forex Gain & Loss Account 1 USD

February 1st, 2022 Journal Lines (reversing portion)

Dr Forex Gain & Loss Account 1 USD

Cr EUR Checking Account 1 USD

This would result in the system showing a balance for the 110010 EUR Checking Account of 11 USD when viewing the Trial Balance, Balance Sheet, etc. with an end date or system date set to January 31st, 2022.

This is a simple example with one transaction and one Ledger Account and Location combo, but this same process takes place for all Journal Lines involving an eligible Ledger Account to be revalued with all Location combos the Ledger Account appears in. This would include the Journal Entry happening at a subsidiary level, and moving up to display in parent level Locations. Be sure to review the How do I revalue foreign currencies support article for more details.