INDEX: Certified QuickBooks ProAdvisor Esther Friedberg Karp reveals the ins and outs of the new multicurrency function in concluding this two-part tutorial. Part I discussed how to get started and walks through basic features of the new multicurrency feature. Part II discusses … calculating exchange gains and losses, various issues in multicurrency banking, and working with multicurrency reports. Bonus Tutorial on Multicurrency in QuickBooks Part II of II: The Nuts and Bolts of Multicurrency By: Esther Friedberg Karp, Certified QuickBooks ProAdvisor®

As a Certified QuickBooks ProAdvisor in both Canada and the United States, Esther Friedberg Karp has long dealt with multicurrency issues, assisted in part by the Canadian version of QuickBooks, which has had a version of multicurrency capability in earlier iterations. That’s why we asked her to dive deep into the new multicurrency capability in Intuit® QuickBooks® 2009 financial software. In Part I of this two-part series, she walked you through many practical issues, demonstrating the Currency List, how the rates of exchange are updated, the effects of multicurrency on other lists, dealing with foreign selling prices, and how the multicurrency capability works behind the scenes. In Part II we will be calculating exchange gains and losses, various issues in multicurrency banking, and working with multicurrency reports.

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How Are Exchange Gains & Losses Calculated For You? QuickBooks not only tracks exchange rates and provides customers and vendors with documents in their native currencies; it also calculates gains and losses on foreign exchange for you. This calculation is based on the concept of “opening” & “closing” a transaction. Let’s take the example of an accounts receivable invoice. The invoice is considered “opening” the transaction. There is a home currency equivalent of the foreign amount on each line, but there is no effect on foreign exchange gain or loss at this point; it is too soon. When the invoice is paid by the customer, let’s consider the receive payment function as “closing” the transaction. At that point, there will more than likely be an exchange rate that is different from the one that was prevailing at the time of “opening” the transaction. The effect of the difference between the two exchange rates (between “opening” and “closing” transactions) will create the effect on the account “Exchange Gain or Loss.” Let’s say that the invoice, which was dated July 1, 2008 at an exchange rate of 0.9817, was paid by the customer on August 15, 2008. At the time of payment, the exchange rate was 1.012. In other words, the Canadian dollar was worth more than the US dollar on the day the invoice was paid. (By the way, if the money paid in Canadian funds went right into the client’s USD account, and the bank gave an exchange rate that was different from the downloaded rate – they often do in order to take a piece of the action – that actual exchange rate can be overwritten over the default date-driven rate of 1.012.) Here’s what QuickBooks does when the “closing” transaction takes place:

• It clears the customer’s account of the $1,000 CDN: in other words, QuickBooks knows that the foreign customer no longer owes that money;

• It clears the equivalent home currency amount of $981.70 out of the Canadian Accounts Receivable (the $US or Home Currency amount in the GL from the original “opening” transaction);

• Calculates $30.30 Gain on Foreign Exchange (a credit to the “Exchange Gain or Loss” account in this case) as that much more in $US was received than was anticipated originally when the “opening” transaction was posted. That is the difference between the $981.70 originally anticipated to be paid in the home currency and the $1,012.00 that was actually paid, due to the exchange rate fluctuation.

Note that in the Receive Payment window below, entering the customer name and hitting the TAB key automatically changes the A/R account to the appropriate currency’s Accounts Receivable account on the chart of accounts. The first face is the on-screen face, showing the amounts owing and paid in the foreign currency, the exchange rate, and the equivalent amount paid in the home currency at the chosen exchange rate.

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Receive Payment on-screen showing foreign amounts owing, paid, exchange rate, and home currency value of payment The second face of the Receive Payment or “closing” the transaction is the behind-the-scenes face showing the Transaction Journal. Again, the debit and credit columns indicate the amounts affecting the general ledger in the home currency. Columns were added to show the foreign amount (i.e. the amount denominated in the foreign currency), the currency, and the prevailing exchange rate. Note that the last row of the entry shows the automatically calculated and posted Exchange Gain or Loss. In this case, it’s a credit because more was received in the home currency than was originally anticipated, and so it’s a gain.

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Note that the concept of “opening” and “closing” a transaction along with automatically calculating and posting to Exchange Gain or Loss also applies to bills and accounts payable, with opposite results. Therefore, a bill for $1,000 CDN on July 1 at the exchange rate of 0.9817, paid August 15 when the exchange rate was 1.012 would result in a $30.30 loss or a debit to Exchange Gain or Loss, as more money would be required to satisfy the $1,000 CDN payable ($1,012.00 in the home currency) than was originally anticipated when the bill came in ($981.70). If the exchange rate on a transaction was changed, QuickBooks prompts the user to allow it to alter the currency profile with this rate for this date. The pop-up question is “Would you like QuickBooks to save this new rate?” If answering “yes,” then the currency profile adds this exchange rate for this currency for this date. If the currency already has a rate for this date (previously downloaded or entered), it will change the rate. No previously entered transactions are affected by changing an exchange rate, unless the previous transactions are manually edited one by one.

Changing the exchange rate: QuickBooks prompts for saving the rate If the answer to this prompt is “yes”, the manually entered exchange rate for that date is added to that currency’s profile.

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The exchange rate is added to the currency’s profile if the answer is “Yes” Foreign Open Balances Open balances on accounts receivable and accounts payable reports are shown by default in the home currency. This is not very useful when looking to see how many yen, Euros, pesos, or Canadian dollars you are owed by customers or you owe to vendors. It is often useful to separate the A/R reports by currency and the A/P reports by currency. This is easily done by modifying, for example the Open Invoices format of A/R report or the Unpaid Bills Detail format of A/P report. Once the modifications are complete, an A/R report for each currency and an A/P report for each currency can be memorized. The modifications would be as follows, as in the case of the Open Invoices report (the modifications can be all done together rather than selecting OK after each set of modifications).

• Modify Report > Display > Checkmark next to Foreign Open Balance and next to Currency > OK

Then • Modify Report > Filters > Currency > Canadian Dollar (for example) > OK

Then • Modify Report > Header / Footer > Title of your choosing

Then • Memorize Report

Rearrange and resize the columns as desired. If required, keep the column for Open Balance, which is the home currency equivalent of each entry’s Foreign Open Balance.

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Memorized Foreign Open Invoices report

Memorized Group of Multicurrency Reports, including Open Invoices - $CAD Foreign Registers and Deposits When selecting Banking > Make Deposits, QuickBooks automatically looks to Undeposited Funds first. When there are foreign amounts sitting in Undeposited Funds from receiving payments on foreign invoices or from foreign sales receipts, QuickBooks allows the user to choose which currency of Undeposited Funds to view. In other words, the Undeposited Funds account is segregated by currency.

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Undeposited Funds: segregated by currency The next screen is the actual Deposit screen for the bank, and the date of the deposit drives the pop-up exchange rate, which can be changed manually (especially useful for depositing foreign funds into home currency bank accounts, where the bank offers an exchange rate that is different from the one in the list).

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Make Deposit Window: allows exchange rate to be entered manually if necessary, especially when depositing foreign funds into home currency account (need to match bank’s exchange rate that day) Registers of foreign accounts on the balance sheet show the amounts in the original currency, not the equivalent amounts in the home currency:

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Foreign registers show amounts in the foreign currency Similarly, when reconciling a foreign account, the amounts on the reconciliation screen are also in the original currency, not the equivalent amounts in the home currency. That way, the amounts on the reconciliation screen can be compared directly to their counterparts on the bank or credit card statement.

Reconciliation windows show amounts in the original foreign currency One extra note about foreign accounts: while their registers show the amounts and balances denominated in the original foreign currency, detail reports and QuickReports show the equivalent amounts in the home currency converted at the exchange rate on each transaction. These reports can be modified to show extra columns for Foreign Amount and Foreign Balance.

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Account QuickReport or Transaction Detail Report for foreign account will show the equivalent amounts and balances in the home currency only, unless the Foreign Amount or Foreign Balance columns are added Bank Transfers Bank transfers between accounts of different currencies are very easy to manage in QuickBooks. Just use the regular bank transfer screen by selecting Banking > Transfer Funds. The “From” and “To” bank accounts of different currencies are chosen, as are the date, the amount to be transferred, the currency of the amount to be transferred, and the precise exchange rate given by the bank. This will surely differ from the pop-up exchange rate in QuickBooks.

Bank transfers between currencies: enter date, “From account,” “To account,” Transfer Currency, Transfer Amount, and exact exchange rate given by bank Home Currency Adjustments Over time, as exchange rates change, the home currency value of a foreign balance such as a bank account can change. $100,000 CDN invested in a Canadian account in 2002 was worth only about $62,000 US. Today, it is worth close to $77,000 US. Even without any transactions, we would have to re-value a foreign amount at least once a year at fiscal year-end. Some companies would want to re-value their foreign balances more often than that – some do it monthly or quarterly. That is what the Home Currency Adjustment is meant to address. This function allows the user to change the home currency value of a foreign balance (bank, credit card, accounts receivable by customer or accounts payable by vendor), without changing the actual amount of foreign

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currency units. Therefore, a regular general journal entry will not do. If it were used to change the home currency value of a Canadian dollar bank account, it would not only change the USD equivalent; it would also change the number of Canadian dollars being on record as held in that account, thereby messing up the register and the bank reconciliation. A Home Currency Adjustment changes just the home currency equivalent (and it does it very slickly, calculating what the entry needs to be), without changing the foreign amount of funds, and puts the difference to Gain or Loss on Foreign Exchange. To access the Home Currency Adjustment, select Company > Manage Currency > Home Currency Adjustment. Another way to access it is to select Lists > Currency List > Activities > Home Currency Adjustment.

Home Currency Adjustment Method 1: Company > Manage Currency > Home Currency Adjustment

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Home Currency Adjustment Method 2: Lists > Currency List > Activities > Home Currency Adjustment Once in the Home Currency Adjustment screen, choose the date, the currency, and the desired exchange rate to which you wish the adjustment to be made as of that date. Select “Calculate Adjustment” to see the numbers appear for each balance sheet account affected on that date, along with separate customers for accounts receivable and vendors for accounts payable. Once satisfied (perhaps by playing around with various exchange rates) with what the gain or loss would be, and what the resulting balances would be in the home currency, select “Save & Close” or “Save & New” to post this Home Currency Adjustment.

Home Currency Adjustment screen – you can use it to calculate the adjustment only or to post the adjustment by choosing one of the “Save” buttons at the bottom Drill down in a transaction report to locate the home currency adjustment created above and you will see a very unusual-looking general journal entry containing more than one A/R or A/P line in the transaction, something that seasoned QuickBooks users have never been able to do before:

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Home Currency Adjustment screen – after posting, we drilled down to it to see a rather unusual looking general journal entry!

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Multicurrency reports QuickBooks not only calculates foreign exchange gains & losses for you; it also reports on those that have been realized already, as well as those that are unrealized (because certain transactions haven’t been “closed” yet or because the exchange rate has changed since the last valuation of each foreign account).

Multicurrency Reports in the Company & Financial area of the Reports Menu

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By selecting Reports > Company & Financial > Realized Gains & Losses, you can see a report of realized gains (such as the Gain or Loss on Foreign Exchange calculated and automatically posted) in the company for a chosen date range.

Realized Gains & Losses report By selecting Reports > Company & Financial > Unrealized Gains & Losses, you can calculate (for an “as of” date and for chosen exchange rates for one or more foreign currencies) what the Gain or Loss on Foreign Exchange would be if these gains or losses were realized. The calculation also shows what the adjusted balances would be in the selected foreign balance sheet accounts such as banks, credit cards, accounts payable and accounts receivable. It allows you to make the adjustment in one fell swoop. This adjusts, for example, foreign accounts receivable, foreign customer by foreign customer.

Unrealized Gains & Losses Report setup window

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Unrealized Gains & Losses Report Summary Reports vs. Detail Reports Summary reports such as the balance sheet and the profit & loss show summary figures totaled in the home currency, not in the foreign currency. For example, the balance sheet will show the home currency equivalent (being the total of all home currency equivalent amounts in all transactions in the account at each transaction’s rate of exchange) of foreign currency banks, not the amount in the foreign currency. Detail reports (e.g. by drilling down into the balance sheet) can provide the foreign currency amounts denominated in each foreign currency, by modifying each report and adding a Foreign Amount column and perhaps a Foreign Balance column. Also, an Exchange Rate column and a Currency column may be added if desired. If you find that you are repeatedly running the same detail reports, modifying them to add the foreign columns, then by all means create the report just the way you want it and then memorize it. Times are tough, no doubt about it. Businesses that are serious about surviving will look anywhere they can for customers, and that includes elsewhere on the planet. They can be prepared (as can their accounting professionals who support them) by using this amazing tool hiding in the QuickBooks software they know and love. Esther Friedberg Karp is a Certified QuickBooks ProAdvisor in both Canada and the United States. She is President and Owner of CompuBooks Business Services and a frequent contributor to Intuit® ProConnection®. © 2009 by Intuit Inc. All rights reserved.

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