Reporting Requirements for Annual Financial Reports of State Agencies and Universities
General Accounting
Payables/Accrued Expenditures
Foreign Currency Transactions
Receivables or payables may be due in a fixed amount of foreign currency when a foreign currency transaction occurs.
Fluctuations in the exchange rate between the U.S. dollar and the foreign currency in which the transaction is denominated result in an increase or decrease of U.S. dollar cash flows when the transaction is settled.
- Recognize a gain or loss from this increase or decrease of U.S. dollar cash flows in the foreign currency transaction during the period in which the exchange rate changed.
- Recognize a transaction gain or loss realized in the period in which the transaction is settled in a foreign currency. The transaction gain or loss is measured from the later of the transaction date or the most recent financial statement date.
The following rules apply unless dealing with a foreign exchange contract that meets the definition of a derivative:
- Measure and record the asset, liability, revenue, expense, gain or loss in U.S. dollars by using the exchange rate in effect on the date the transaction is recognized.
- Adjust recorded balances denominated in a foreign currency to reflect the exchange rate on the financial statement date.
Exchange Rate
Exchange rate is defined as the ratio of one currency’s unit to the amount of another currency for which that unit can be exchanged at a particular time. If an exchange is not available between the two currencies on the transaction date or the financial statement date, use the next rate on which the exchange is available.
The applicable exchange rate to translate and record foreign currency transactions is the rate that could be used to settle a certain transaction on the transaction date. Use the current rate that could be used to settle the relevant receivable or payable when dealing with a subsequent financial statement date.
Disclose the recognized cumulative gain or loss for the period in the notes to the financial statements.
Do not adjust the financial statements for a change in rate occurring subsequent to the financial statements. Nonetheless, it may be necessary to disclose the rate change and its effects on unsettled balances.
Example
On Dec. 1, 20XX, agency A purchased goods from a vendor located in Toronto for 10,000 Canadian dollars. The payment is due in 90 days. The current exchange rate is 1 Canadian dollar = 0.96 U.S. dollar. The agency records the following entry on the transaction date to recognize the payable:
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ | Amount | R | Appn No | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Record the Purchase of Goods. | |||||||||||||
| (1) | 5 | U | XXXXXX | XXX | 644 | XX | XXXXX | XXXX | $ 9,600.00 | N/A | XXXX | XXXX | |
| To Record the Accrual for the Purchase of Goods. | |||||||||||||
| (2) | 5 | U | XXXXXX | XXX | 645 | XX | XXXXX | XXXX | $ 9,600.00 | N/A | XXXX | 1010 | |
Accounting effect of above entries:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Record the Purchase of Goods. | ||
| XXXX Input GL | $ 9600.00 | ||
| 9999 System Clearing | $ 9600.00 | ||
| (2) | To Record the Accrual for the Purchase of Goods. | ||
| 9999 System Clearing | $ 9600.00 | ||
| 1010 Accounts Payable | $ 9600.00 |
On Dec. 31, 20XX, the exchange rate is now $1 Canadian = $0.95 U.S. The agency needs to adjust its accounts payable balance accordingly:
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ | Amount | R | Appn No | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Adjust Accounts Payable to New Exchange Rate. | |||||||||||||
| (1) | 5 | U | XXXXX | XXX | 631 | XX | XXXXX | 3888 | $ 100.00 | N/A | XXXX | 1010 | |
Accounting effect of above entry:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Adjust Accounts Payable to New Exchange Rate. | ||
| 1010 Accounts Payable | $ 100.00 | ||
| 5100 GAAP Revenue Offset | $ 100.00 |
The agency paid the invoice on Jan. 15, 20XY, when the exchange rate is $1 Canadian = $0.955 U.S. This results in the following entries:
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ | Amount | R | Appn No | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Re-measure the Accounts Payable. | |||||||||||||
| (1) | 5 | U | XXXXX | XXX | 631 | XX | XXXXX | 3888 | $ 50.00 | R | N/A | XXXX | 1010 |
| To Record Payment of the Accounts Payable. | |||||||||||||
| (2) | 5 | U | XXXXXX | XXX | 644 | XX | XXXXX | XXXX | $ 9,550.00 | N/A | XXXX | 1010 | |
| To Record Cash in Bank. | |||||||||||||
| (3) | 5 | U | XXXXXX | XXX | 645 | XX | XXXXX | XXXX | $ 9,550.00 | N/A | XXXX | 0040 | |
Accounting effect of above entries:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Re-measure the Accounts Payable. | ||
| 5100 GAAP Revenue Offset | $ 50.00 | ||
| 1010 Accounts Payable | $ 50.00 | ||
| (2) | To Record Payment of the Accounts Payable. | ||
| 1010 Accounts Payable | $ 9,550.00 | ||
| 9999 System Clearing | $ 9,550.00 | ||
| (3) | To Record Cash in Bank. | ||
| 9999 System Clearing | $ 9,550.00 | ||
| 0040 Cash in Bank | $ 9,550.00 |