Adjustment of Balances in Foreign Currency 

Use

When you run the Inflation Adjustment of G/L Accounts program, it automatically adjusts any G/L account balances in foreign currency according to the net change in the exchange rate since the last adjustment date. This applies both to foreign currency balance sheet accounts and to accounts managed in local currency that allow balances in foreign currency.

Features

The system valuates each balance in foreign currency using the average exchange rate.

It creates an inflation adjustment document for each balance, which it adds to the batch input session.

If you have activated the inflation adjustment split in the inflation method, the system:

In order to do so, it calculates how much the balance would have been worth if it had been in your local currency and subject to the general inflation rate. It then subtracts this amount from the foreign currency valuation.

The amounts are always posted in your local currency only, not in the foreign currency.

Example

Your local currency is the UNI; you have an account managed in UNI and euros. At the start of the month, it has a balance of EUR 10,000 which is worth UNI 80,000: The exchange rate is 8.00.

At the end of the month, the balance has not changed, and the exchange rate is 8.50, which means that the EUR 10,000 is now worth UNI 85,000: an increase of UNI 5,000 (in the example below, posting 1). However, the general inflation rate in that month was 0.5%, which accounts for UNI 400 of that increase (posting 2). After allowing for inflation, therefore, the exchange rate gain is UNI 4,600.