Profit & Loss with Foreign Exchange
KyleTF
Member Posts: 1
Hi there,
I've searched around and read the various support articles about handling transactions in foreign currencies, but I'm still confused about how to get the correct amounts to show up in various Reports.
I'm in Canada and my accounts are as follows:
My primary account is CAD. I also have a USD savings account. Some clients pay me in CAD, and some pay in USD. Those who pay in USD either transfer me the amount to my USD savings account via direct wire, or use a third party payment service like Bill.com. In the latter case, once the USD amount is available to me in the third party service, I transfer it to the USD savings account, where it shows up as an incoming wire. The third party service usually charges a flat fee for this, the transaction for which I can record in the corresponding Wave account.
Once the money is in my USD savings account, it is recorded as an invoice payment in Wave. Note that at all times the money remains unconverted as the original amount in USD.
Following this, I convert the money to CAD by having my bank transfer it from the USD savings account to the CAD account. At this point, the currency conversion takes place.
With this system, all the Transactions in Wave reconcile and the balances match my various accounts (USD, CAD, and third party USD payment accounts). The USD savings account has a balance of 0.00 and so do the third party USD payment accounts.
The balance sheet and general ledger, however, show a balance on the USD accounts. For me, the foreign currency shows the correct balance of $0.00 but the CAD conversion shows a certain amount +/-. I understand this is a limitation of Wave and the proposed solution is to create yet another "Revaluation" account in which to track gains and losses on foreign exchanges. With some fiddling, I've set this up in such a way that some Revaluation transactions neutralize the balance. Thus the Balance Sheet shows the actual amount of money in my bank accounts.
That said, the wrong (?) numbers still show up under Profit & Loss. They're out by a few hundred dollars when I choose the "Cash basis (Paid)" view — and it's not the same amount in difference that showed up on the Balance Sheet before Revaluation. The excess under Profit & Loss are caused by the foreign transactions being converted to an amount different than I actually received for those transactions, but in a different way than what showed on the USD accounts.
In principle, I can maybe understand why Wave uses the "mid market rate." But I have no idea how to represent the difference between what I actually received for these payments and what the Profit & Loss statement shows, nor why the difference between the two is different than what shows up on the Balance Sheet, even though all my accounts are reconciled.
Ok, I know that was very long but I hope the detail provides necessary context.
Thank you!