9   International transactions

International transactions (multiple currencies) are only available in the ABSS Premier range.

You can enter transactions in a number of currencies in addition to your local currency, the Malaysian ringgit or Singapore dollar. You can record transactions in ringgit, dollars, pesos, pounds, euros, yen or any other currency you use when buying and selling goods and services. You can also track overseas bank accounts and foreign assets and liabilities.

About the multiple-currency feature

If you deal in multiple currencies, it's important to track the effects of currency exchange fluctuations on your business. ABSS Premier provides detailed reports to help you manage both unrealised gains and losses (potential changes in the value of overseas transactions) and realised gains and losses (the actual changes in the value of your assets, liabilities and equity that occur when you exchange foreign currency for your local currency).

The multiple currencies feature is optional. If all your business is conducted with customers and suppliers in your local currency (for example, Malaysian ringgit or Singapore dollar), there's no need for you to use this feature. If you do want to use it, you need to set a preference.

You will also have to perform a number of setup tasks described in this chapter. For example, you need to set up special accounts to track the transactions you make in each currency. If, for instance, you plan to make sales in euros, you need to create a separate receivables account for your sales in Europe.

Every foreign currency account you create requires a companion account, known as an exchange account, to track changes in the value of the transactions assigned to the account. Only balance sheet accounts-asset, liability and equity accounts-can be assigned a foreign currency. All other types of accounts are tracked using your local currency

Your local currency (for example, Malaysian ringgit or Singapore dollar) is set up automatically for you. As this currency is used to determine the value of all other currencies, it cannot be deleted and its exchange value is fixed at 1. Before you begin entering transactions, you need to select the appropriate currency for all your overseas customers and suppliers. Only one currency can be used for each customer or supplier (unless you choose to set up multiple cards for them). This ensures that your records remain accurate and it speeds up the task of entering transactions.

For simplicity, the examples in this chapter use the Singapore dollar as the local currency.

Setting up multiple currencies

Before you can record transactions for multiple currencies, complete the following setup steps.

Task
1 Select the multiple currency option
2 2 Set up records for foreign currencies
3 Create accounts to track foreign currency transactions
4 Assign accounts to foreign currencies
5 Assign currencies to foreign customers and suppliers

Once the setup is complete, you can enter foreign currency transactions the same way you enter transactions based on local currency

Task 1: Select the multiple currency option

  1. Go to the Setup menu and choose Preferences. The Preferences window appears.
  2. In the System tab, select the I Deal in Multiple Currencies option. A message appears.

    NOTE : This selection cannot be undone Once you begin entering multicurrency transactions, you cannot deselect this option.

  3. Click OK to prepare your company file for multiple currencies.
  4. Click OK to close the Preferences window.

Task 2: Set up records for foreign currencies

Records for several commonly used foreign currencies, as well as your local currency, have been set up by default.

If you do business in any other currency, you will need to create a record for the currency and enter its current exchange rate.

  1. Go to the Lists menu and choose Currencies. The Currencies List window appears.
  2. Click New. The Currency Information window appears.
  3. Enter details of the currency such as a code, name and current exchange rate. For detailed field help, click Help and choose Help for This Window. At this stage, you only need to complete the Currency Profile tab.
  4. Click OK and then click Close.

Task 3: Create accounts to track foreign currency transactions

In order to track transactions in a foreign currency, you must create a number of accounts that use that currency rather than dollars. You cannot simply use the same accounts you use for your local currency transactions because your currency and other currencies rarely trade at par with one another (that is, one Singapore dollar rarely buys exactly one monetary unit in any other currency).

NOTE : Foreign currency accounts linked to exchange accounts A linked exchange account is needed for every foreign currency account you create. For example, if you create a yen cheque account, it must be linked to a yen exchange account. ABSS software uses these dual accounts so that both the foreign currency amount and the local currency equivalent of a transaction can be viewed in your balance sheet.

You can let your ABSS software create the linked exchange account for you or you can select one yourself. To create an account yourself, see 'To create an account'. You need to select the correct currency and exchange account in the Account Information window.

Before you create an account, we suggest you review the following sections to get an understanding of the accounts you need to create.

If you make foreign sales

Following is a list of the accounts you are likely to need if you accept payment from customers in a foreign currency.

  • Asset account for tracking receivables (for instance, 'Receivables Accounts Euro'). This account must be assigned the foreign currency and not your local currency.
  • Bank account where customer receipts in the foreign currency will be deposited. This can be your local currency account if your bank accepts deposits in other currencies.
  • Liability account for deposits received (if you allow customers to make deposits on orders). This account can be assigned the currency code for either the foreign currency or your local currency

NOTE : Grouping with undeposited funds Only receipt transactions that are in your local currency may be grouped with undeposited funds. Also, you can only use your local currency account as the linked account for undeposited funds.

If you make foreign purchases

Following is a list of accounts you are likely to need if you make payments to suppliers in a foreign currency:

  • Liability account for tracking payables (for instance, 'Payables Accounts Euro'). This account must be assigned the foreign currency and not your local currency.
  • Bank account that will be used to pay debts in a foreign currency. This can be your local currency account if your bank writes cheques for you in other currencies.
  • Asset account for deposits paid (if you make deposits on orders). This account can be assigned the currency code for either the foreign currency or your local currency
  • Liability account for import duties collected (if you're required to pay duty on goods you import). This account can be assigned the currency code for either the foreign currency or your local currency

If you track unrealised gains and losses

When you activate the multiple-currency feature in your ABSS company file, a Currency Gain Loss account is created automatically. If you plan to track unrealised gains and losses, you need to create an income account for this purpose, naming it 'Unrealised Currency Gain/Loss' or something similar.

We recommend that you consult your accountant to determine whether your business needs to track unrealised gains and losses and, if it does, the most appropriate way for it to do so. See 'Tracking currency gains and losses' for more information.

Depending on your business, you may need to create additional accounts to track foreign bank accounts, assets held overseas and the like. If you are unsure about the accounts, ask your accountant or an ABSS Professional Partner

Task 4: Assign accounts to foreign currencies

  1. Go to the Lists menu and choose Currencies. The Currencies List window appears.
  2. Click the zoom arrow (⇨) next to the currency you wantto assign to one or more accounts. The Currency Information window appears.
  3. Select the required tab. Click either:

    • the Receivable Accounts tab if customers pay you in this currency or
    • the Payable Accounts tab if you pay bills in this currency.
  4. Enter the relevant accounts in the appropriate fields. In the bottom section of the window, select the options that apply to your business. As you select options, additional fields will appear and you can enter the accounts you will use to track various parts of your transactions such as deposits and discounts. Click OK.

    For detailed field help, click Help and choose Help for This Window.

  5. Repeat this procedure for each currency you want to assign to the relevant accounts, then click Close.

Task 5: Assign currencies to foreign customers and suppliers

The currency used to make a transaction is determined by the currency assigned to the customer or supplier card you are using.

A card can only use a single currency so if you deal with a customer or supplier in multiple currencies, you will need to create a separate card for each currency.

NOTE : A card with transactions You cannot change the currency of a card that you have already used in transactions. You will need to create a new card for the customer or supplier.

Any transactions recorded for a customer or supplier card will be in the currency linked to the card.

  1. Go to the Card File command centre and click Cards List. The Cards List window appears.
  2. Click the zoom arrow (⇨) next to the required card to display the Card Information window.
  3. In the Profile tab, type or select the currency you want to assign to the card in the Currency field. (The local currency is selected by default.)

  4. Click OK.
  5. Repeat this procedure for each card that you want to assign a foreign currency, then click Close.

Exchange rates

Foreign currency transactions can be recorded for:

  • Sales, Receive Payments, and Settle Returns & Credits
  • Purchases, Pay Bills, and Settle Returns & Debits
  • Spend Money, Receive Money, Reconcile Accounts and General Journal entries.

Specifying the exchange rate for a transaction

When entering a transaction, you can either use the default exchange rate for the currency or enter a new rate for the transaction.

To change the exchange rate

  1. Calculate the exchange rate using the Currency Calculator. See 'Using the Currency Calculator' below.
  2. Open a transaction window and enter the transaction details.
  3. Click Rate at the bottom of the transaction window. The Exchange Rate window appears.
  4. Enter the new exchange rate in the Transaction Exchange Rate field.

    This will only affect the transaction that is currently displayed.

    If you want to change the exchange rate for all future transactions that use this currency, select the Update Current Exchange Rate in the Currency List with Transaction Exchange Rate option.

  5. Click OK.

Using the Currency Calculator

If you receive a payment for a foreign currency invoice in your local currency, you can use the Currency Calculator to calculate the exchange rate based on the foreign and local amounts, or to calculate the foreign amounts based on the local amounts and the exchange rate.

To access the Currency Calculator from any window in your ABSS software, click the Help menu at the top of the screen and choose Currency Calculator.

Tracking currency gains and losses

Whenever you have a foreign bank account, changes in the currency exchange rates between that country and your home country can cause the value of your foreign currency to fluctuate. When your local currency weakens relative to the foreign currency, the value of your foreign account increases, creating a currency gain. When your local currency strengthens, your foreign account experiences a loss in real value. Your ABSS software can track these fluctuations.

Gains or losses in the value of a foreign account are considered unrealised while the money is still sitting in the foreign account. Conversely, when the money is withdrawn from the account, either by using it to pay for a purchase or by converting it to local currency, the gain or loss is considered realised.

Tracking realised currency gains and losses

Realised currency gains and losses on sales and purchases are tracked differently to realised currency gains and losses on deposits and withdrawals.

For realised gains or losses on sales and purchases, a posting is made automatically to the Currency Gain/Loss account.

For realised currency gains and losses on transfers-deposits and withdrawals-you need to make a general journal entry to the Currency Gain/Loss account.

When you activate the multiple-currency feature in your ABSS company file, a Currency Gain/Loss account is created automatically.

NOTE : Large foreign currency exposure If you have a large foreign currency exposure, you may require a more detailed analysis than posting to a single Currency Gain/Loss account provides. In this case, we recommend that you consult your accountant for further advice about managing your foreign currency exposure.

Sales and purchases

At the time a currency gain or loss is realised, that is, a payment is received or made, an automatic posting is made to the Currency Gain/Loss account and to the exchange account for the foreign currency.

The Currency Realised Gain/Loss report lists the currency gains and losses that have been posted automatically through sales and purchases during the month for foreign-currency transactions.

Example   You sell goods for $300 at an exchange rate of $3.00 to the pound to a British customer. your ABSS software records the sale at $300 and records the £100 as owed by the British customer. The £100 is posted to British receivables account: $200 to the British receivables exchange account and $300 to the sales account.

The following month the British customer pays their account by depositing £100 into your British bank account, but the exchange rate has changed from $3.00 to $2.75 to the pound. The deposit is valued at $275.

You originally made a sale of £100 that at the time was worth $300. When you received payment, it was worth only $275. Therefore the $25 difference is a realised currency loss, and will be posted to the British receivables exchange account and to the Currency Gain/Loss account.

Transfers

Currency gains and losses that occur through the transfer of funds need to be recorded by a general journal entry.

At the end of the month, you can look at the value of your foreign accounts and use the Currency Calculator (from the Help menu at the top of the screen) to calculate their true values in local currency at that time.

You can then create a general journal entry where losses are posted as credits to the exchange account with a corresponding debit to your Currency Gain Loss account. Gains are posted as debits with a corresponding credit to your Currency Gain Loss account.

Example   The original balance in your British bank account is zero and you transfer £100 at an exchange rate of $3.00 to the pound to it. The £100 is converted to S$300 and your ABSS software posts £100 to the British bank account and $200 to the British bank exchange account.

The following week you withdraw that £100 from the bank at an exchange rate of $2.75 to the pound. Your ABSS software values the withdrawal at $275. You put £100 into the account that at the time was worth $300. When you withdrew the £100 from the account, it was worth only $275. Therefore, the $25 difference is a realised currency loss.

If you now looked at your balance sheet, you would see a zero value for the British bank account, but $25 remaining in the British bank exchange account. You need to post the $25 in the exchange account to your Currency Gain Loss account.

Unrealised currency gains and losses

An unrealised gain or loss is a potential gain or loss at any point in time between the recorded sale or purchase and the receipt or issue of payment. No automatic postings are made to track unrealised gains or losses on foreign currency transactions.

Not all businesses need to track unrealised currency gains or losses. You should check with your accountant to determine whether your business needs to track them.

The Currency Unrealised Gain/Loss report lists the gain or loss made on each foreign currency. You can then use this information to make adjustment postings to each of your foreign currency accounts for your balance sheet and also to a profit and loss account.

Miscellaneous transactions

Transferring funds to a foreign account

You may want to transfer funds from a local-currency account to a foreign account. This is done using the Spend Money window.

  1. Go to the Banking command centre and click Spend Money. The Spend Money window appears.
  2. Click Currency. In the Exchange Rate window, choose the currency of the account into which you want to make a deposit and click OK.
  3. In the Pay from Account field, type or select the local currency bank account from which the amount is being withdrawn.
  4. Enter the date, amount, payee, and memo.
  5. In the Account No. (or Name) column, type or select the foreign account into which you want to make the deposit.
  6. Click Record.

Entering foreign-currency transactions in a local account

In ABSS software, you can enter foreign-currency transactions in a local-currency account. For example, you can accept a cheque from a customer in GB pounds and bank it in a Singapore bank account.

Example   Let's look at an example of how to accept a foreign-currency cheque into a local-currency account. Our example uses British pounds. Let's also assume the exchange rate has changed from $3.00 to $2.80 since you made the original sale.

  1. Go to the Sales command centre and click Receive Payments. The Receive Payments window appears.
  2. Select the customer. The currency for this customer card is British pounds, so the Rate button displays GBP.

    You have received a cheque from your customer for £5,000 for an outstanding invoice, and you want to bank it in your Singapore cheque account.

  3. Process the customer payment in the usual way, but make sure you enter your Singapore bank account when you select the Deposit to Account option.
  4. Click Rate to check the default currency rate for the British pound. Change the rate from the default rate of $3.00 to $2.80 and click OK.
  5. Enter £5,000 in the Amount Received field and allocate it to the outstanding invoice.
  6. Click Record.

Reconciling accounts containing foreign transactions

When you are reconciling your bank statement, the foreign currency transaction amounts listed in your statement will often not match those listed in your ABSS company file. This is because the exchange rate used by the bank is different from the rate used in your ABSS company file at the time of the transaction. There are two methods by which you can reconcile accounts containing foreign transactions:

  • If you have your security preferences set to allow records to be changed, simply click the zoom arrow (⇨) next to the transaction in the Reconcile Accounts window to display the original transaction. Click Rate and change the exchange rate to match the bank statement.
  • If you have the security preferences set so that records cannot be changed, click the zoom arrow (⇨) next to the transaction, choose Reverse [...] Transaction from the Edit menu, and re-enter the transaction with the correct exchange rate.