Over the past year, we have watched the Canadian dollar drop relative to its U. The starting point to recording foreign exchange transactions is choosing an accounting policy. Most policies look something like this:. The company translates monetary assets and liabilities any item paid for or settled in cash into the Canadian dollar at exchange rates prevailing on the balance sheet date.
Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Exchange gains and losses from the translation of monetary items are included in net income for the year. Revenues and expenses are translated at the spot rate on the date the transaction occurred. When your company translates its foreign currency transactions, such as purchases or sales, no foreign exchange gain or loss is recorded.
Foreign exchange gains and losses are caused by holding U. No timing difference — no risk! Monetary assets and liabilities are usually translated twice, but sometimes can be translated three times.
The first translation occurs when the asset or liability is created, the second time when it is settled, and the third translation occurs at year end, as companies are required to translate monetary assets or liabilities using the year end spot rate. If your company has U.
An example of a natural hedge is a construction company working in the United States. They are paid in U. Only companies with just U. We do this by asking what effect the error will have on business decisions. Probably not, as you can find the fair market value of the securities on monthly investment statements.
Other errors are not so benign. The most common error is using the wrong exchange rate, and if a company translates a purchase or sale incorrectly, the error will show up in the related accounts receivable or accounts payable balance. When the account is settled it will be paid in the correct foreign currency amount. Any error will then be adjusted to a foreign currency gain or loss along with the actual gain or loss. Errors in accounts payable or accounts receivable are self-correcting as they are settled; however, the original sale or purchase will still be recorded at the wrong historical amount.
A company does up a bid for construction work and sources some of its material from its current inventory, but these inventory items have been translated at the wrong rate. We can help you ensure your foreign currency transactions are being recorded correctly. Other articles that might interest you on this subject: We are continually impressed with their knowledge, professionalism, and interest in our business.
Hiring a great accountant is an important part of growing a successful business and we've made a very good choice. Crowe MacKay provides practical and timely advice in a very clear and concise way.
I rely on them for all of my accounting, tax and business planning advice. They are always on top of our family affairs and are the people to whom we look for guidance and planning.
We, frankly, cannot ask for more or better service. They have the ability to help us with complex accounting issues in all of our locations At the same time, they are small enough that their staff really knows and understands our account.
The audit team consistently does a wonderful job and we look forward the opportunity of working with them each year. Dean River Christensen Ranch Ltd. Underworld Skateboard Vancouver Inc. Silica Glass Contracting Ltd. Raw Canvas Studios Inc. Cascade Renewable Carbon Corp. Houston Department Store Ltd. Richards Street Beverage Company Ltd. Airwaves Sound Design Ltd.
Back What Makes Us Different? Blog Tags Advisory , Accounting , Records. Sign up to receive our quarterly newsletter, important tax and financial insights, specialized reports and bulletins. How did you hear about us?More...