Translation of All Amounts into Local Currency
Translation of All Amounts into Local Currency
Prerequisites
You want to clear G/L accounts that contain items in both foreign and local currency, in local currency.
Use
This option is preset in the standard system. When you clear open items, all amounts in a foreign currency are translated into the local currency using the current exchange rate. This guarantees that for foreign currency invoices that are to be paid in a different currency (for example, local currency), a proper breakdown is made between exchange rate differences and payment differences.
Some of the open items are in local currency, while others are in several different foreign currencies. You clear all open items using the local currency.
An invoice for 1,000 USD is posted, the current value in DEM is 1,580. At the time of payment, the USD exchange rate has changed from 1.58 to 1.63, and the customer wants to make a payment of 1,620 DEM.
|
Foreign currency |
|
Local currency |
Amount to be cleared |
01.01.95: Invoice |
1000 USD |
1.58 |
1580 DEM |
|
23.01.95: Payment |
1.63 |
1620 DEM |
1630 DEM |
If the open items are cleared using the local currency, the system uses the current exchange rate to translate the foreign currency amounts to local currency. It valuates the original invoice for 1000 USD using the current exchange rate, resulting in an amount of 1630 DEM. Payment was made for 1620 DEM, which means the system would post an unauthorized deduction of 10 DEM and an exchange rate profit of 50 DEM.
The open item in this example was translated into local currency using the current exchange rate instead of the historical rate. If the historical rate had been used, the customer would have overpaid by 40 DEM, and an exchange rate gain would not have been realized.