Transfer between Accounts w/ Different Currencies
dangosarecute
Member Posts: 14
I have some accounts with different currencies than my main one (BRL).
If I wish to transfer 1 USD to an account whose currency is 1 USD, I create an income transaction for 1 USD in that account and categorize it as a Transfer from the BRL account.
I understand Wave will calculate the amount in BRL on its own, and most likely than not the amount credited from my BRL account will not necessarily match the actual one once my bank does the transaction.
I understand the correct thing to do would be to create a Journal Transaction to either debit or credit my BRL account and credit or debit either my Loss on Foreign Exchange or Gain on Foreign Exchange accounts, to properly account for the difference in calculated and effective exchange rates.
However, I could also just edit my credit amount on the BRL account such that it matches what was actually credited on my bank extract. If I do that, it doesn't change the 1 USD value in my USD account, nor does it seem to change the balances in the Loss on Foreign Exchange or Gain on Foreign Exchange Accounts.
I'd be satisfied with this solution but I worry that I'm doing it wrong. Is the difference in values being accounted somewhere else?
ps: both the USD and BRL accounts are asset accounts.
Comments
Hey @dangosarecute . If it isn't changing the balances in Loss/Gain on Foreign Exchange then you should be good as it isn't being accounted for anywhere else!
@AlexL is it perfectly okay then to just change the amounts without crediting / debiting the Loss/Gain on Foreign Exchange accounts?
Hi @dangosarecute . Yep! Because you're making these tweaks on your own to the BRL account, there's no need to credit / debit those accounts.
Hey @AlexL,
I'll give some continuity to this discussion given that you are talking about transfers between accounts w/ different currencies.
In my case, I'm form Argentina and I have USD vs AR$. I've realized how when I do transfers between USD and AR$ Wave will accept those transfers while the number in AR$ is within a reasonable range +/- based on the currency exchange for a particular date.
For example, in real life:
Wave will accept such transfer if the exchange rate is not above AR$36 and maybe not beyond AR$34. If you get an exchange rate outside of that range it might not accept the transfer. And it happens... sometimes the exchange rate from xe.com is quite different to the one we get at our banks.
That said, I thought I found a workaround by defining that I'm getting USD1000 at my AR$ account and setting the exchange rate manually at AR$35. If I don't do a transfer between accounts, Wave will process USD1000 * AR$35 = AR$35000 and my account balance will look ok. If I do a transfer between accounts, then Wave will use the currency exchange from xe.com and my account balance will be inaccurate (even if I have set the exchange rate manually at AR$35).
This forces me to keep some transactions as INCOME vs EXPENSE (instead of TRANSFERS), which helps with getting the balance correct, but ends up modifying the real amount of INCOME and EXPENSE on those 2 accounts, if that makes sense.
My question... I'm sure you've got lots of inquiries on this topic by international clients, but is there any workaround to this? What do you suggest?
Thanks,
Hernan
Hi Hernan @Isopo! Thanks for taking the time to provide us with this detail! You are correct, we do have a few inquiries around accounting for foreign exchange transactions. We suggest creating an adjusting Journal Transaction entry to account for the exchange gain/loss on the transfer. This Wave guide may be able to provide some further insight on accounting for foreign currency transactions.
That was a very helpful article.
I was wondering how it works when you actually receive the money in a USD account and then transfer it to your local currency account (ARS in my case). Because the article says you can define the exchange yourself, which is true, but then the balance will use the amount that’s calculated based on the automatic exchange rate (and not the one you manually set).
Like when you use the filters in the TRANSACTIONS screen the balance will match ok, but then if you go to the GENERAL LEDGER for example, the numbers won’t match. I think my issue is more related to transfers between accounts with different currencies, and not to exchange gain/loss for when the invoice is issued/paid.
Does it make sense?
@Isopo Interesting. The reporting should align up with what you input in the Transactions page since that's where the data comes from.. happy to look into this a bit further though if you wanted to include a screenshot of an example transaction, as well as what number shows up on the General Ledger report as well.
Great, I'll try my best!
Issue #1
When I do a transfer between my USD account and my AR$ account the balance in the general ledger report for my AR$ account will vary in comparison with the verified balance from the Accounting/Transactions list.
Let's say I set USD2,000.00 as an expense in my USD account and AR$82,400.00 as an income in my AR$ account. If the AR$ amount calculated by Wave using that day's exchange rate from xe.com is within a reasonable range when compared to the resulting exchange rate from the transaction (AR$82.40 in this case), then the transfer will go through and in my verified balance I will have +AR$82,400.00
The problem is I am supposed to have a balance of +AR$82,400.00 in the general ledger report as well (or at least that's what I would be expecting), but it is not happening. The general ledger report will show a balance based on the AR$ amount calculated using the exchange rate from xe.com for that specific date of the transaction.
Thus, my general ledger report and verified balance (from the Accounting/Transaction list) will differ.
Why is this happening? Is it correct?
Issue #2
So, to start, on 2018/12/03 I wanted to transfer out USD1,000.00 from my USD account to my AR$ account. Back then, my bank used an exchange rate of AR$35.6 but the exchange rate from xe.com was AR$37.7331695791.
So basically, as seen in screenshot #1, Wave wouldn't let me do the transfer because the difference between AR$35,600.00 and AR$37,733.17 was too big. The solution would then be to transfer in USD1,000.00 to my AR$ account and setting the exchange rate manually to AR$35.6 (as seen in screenshot #4)
Before applying the exchange rate manually, the verified balance was perfect (as seen in screenshot #2) and the general ledger report was looking fine (as seen in screenshot #3)
As see in screenshot #5, I was able to make the transfer between both accounts as I had USD1,000.00 coming out from my USD account and coming into my AR$ account (with a manual exchange rate previously defined).
The problem is that both the verified balance (screenshot #6) and the general ledger report (screenshot #7) are now showing numbers based on AR$37,733.17 instead of AR$35,600.00, if that makes sense.
Why is it that when you complete a transfer Wave doesn't keep the amount that results from applying the manual exchange rate? The problem is that this forces me to keep transactions like this as INCOME/OUTCOME instead of a TRANSFER IN/OUT, which is not good for the reports.
Thanks in advance
Hey @Isopo . Thanks for writing out such a detailed explanation. Are you accounting for the gains/losses on the transfer of currency at all?
Hey @AlexL, not sure I understand your question. I mean, I do know how the gains/losses work, but I am not sure how that's related to the issues I've described above.
So... are you saying that for Issue #1 I should look for that amount difference (between the Ledger Report and the verified balance from Accounting/Transaction) directly into the Gains/Losses Report? Because maybe that's how it works, and I am doing the wrong analysis.
On the other hand, what do you think about Issue #2?
Hey @Isopo, thanks for reaching out about this. I'm still reviewing your inquiries here, and I can dig in further, but for full transparency, we're about to migrate you to a new version of our accounting platform that will make this issue a thing of the past. We can still dig into this if you want, however you're about to move to a platform that 97% of our users will be on, and we can address this type of transaction interaction at that junction.
Hey @ConnorM I'm going to take a deep look into the new version, but as far as I've seen it looks like you guys have resolved all of the issues I've been experiencing with Wave and the way it used to deal with a volatile foreign currency like the one we have here in Argentina. I'll let you know about my final conclusions, but it seems like you've nailed it with this superb update
Hey @ConnorM so far everything is looking fantastic. It is amazing how you've solved the issue with transfers between accounts <-> different currency exchanges.
One issue I came across with the new version is that I'm unable to delete a invoice I've created for testing purposes. Is there a special area in this forum where I should post this issue?
It is basically this invoice and the error message returned says: Oops! There was an issue with deleting this invoice. Please try again.
Hey @Isopo . Glad to hear you love the new update 🙂
I'm afraid I can't access the invoice itself as I don't have access to your account, but if you'd like to add a screenshot of the invoice to your thread, we can take a further look at if anything stands out.
Thanks @AlexL, I was going to explain the whole situation but when I tried to delete the invoice in order to add the screenshot... voila, magic, I was able to remove it
hi there, first of all, sorry to hitchhike on this post.
Since the issue here seems resolved, do you believe the same solution (new platform) would be an option for a relatively similar issue? I work with 3 currencies and I have questions about the right way to make transfers between payment accounts and base currency accounts while keeping the general ledger accurate.
I have tried to explain the issue in the following post.
https://community.waveapps.com/discussion/6209/transfer-between-accounts-in-foreign-currencies-after-invoicing-and-payment/p1?new=1
Many thanks,
Ali
Hey @aliwave! Thanks for chiming in here. I've taken a look into your other post, and you've got an absolutely fantastic layout of that question put together. I'm going to try to address it within the next few hours here, as I believe I'll need to collaborate with some team members to properly find a solution for you. Thank you so much for your effort in providing as much context as possible there. Hang tight, talk soon!