Accounting treatment of foreign exchange losses or gains

Hi,

Am involved in co. in Poland and if i issue invoices to Irish co. for say 100,000 PLN but only receive payment in full of 97,000 PLN (due to FX loss - customer does not owe me any more) in my bank account - is the normal treatment simply to raise a sales credit note for 3,000 PLN?

If so would the 3,000 go as a debit to sales or as a debit to P&L expenses? assume same treatment would apply in other scenario if I make a gain.

Thanks

You should debit a Loss/Gain on Foreign Exchange A/C in your P & L Account.

It is regarded as a financial expense.

It depends on the software. In Sage I haven't found a nice way to record an FX loss - instead I record a receipt for the full amount against the invoice, followed by a payment for the loss into an FX expense account. You'll probably want at least two FX expense accounts - one that appears as a cost of sale and one as an overhead.

You should have a foreign currency loss / gain nominal account

On Sage it will depend on what software you have. If you have Sage 50 Accounts Professional (formerly Financial Controller) you will have a foreign trader module which works as follows:
- if you have your company set up with the base currency PLN and foreign trader set up then when you create a customer or supplier you will be able to specify what currency they deal in
- You will be able to set up a currency table which allows you to record currenct exchange rates for each that you deal with. You can allow these rates to be changed in this table only or on the fly when recording transactions whichever suits you.
- When issuing the invoice to your Irish customer (who you will have set up as a euro customer) you will see a box displaying the foreign rate between PLN and euro. You can then invoice the customer in euro based on this rate
- When the customer pays you in euro (which can only be recieved into a euro bank account it is one limitation of the software), if the rate has changed since you invoiced them you can alter this in your currency table or in the box displayed on the transaction entry screen (depending on which setting you chose)
- if their is a difference in the exchange rate between the invoice being issued and the payment being recieved the currency loss or gain will be posted for you automatically.
- when you go into your customers record you will see their balance in euro by default. By chosing instead to see their balance in your base currency you will see the original amount, the paid amount and the loss / gain

I am talking about the Irish Sage product so Andrew this may help with your accounts and recording an FX loss. Trg while this information hopefully is helpful I am unfamiliar with the Polish accounting system / laws / taxes so cannot say for certain if the same Sage product would suit your business. However Sage do have offices in Poland who I am sure could advise you as to what would work for you.

I hope this information might help