Transfer between accounts in foreign currencies after invoicing and payment

aliwave

Hi,

I need to transfer currency from one account in CCC to another account in my base currency AAA. This transfer involves banking fees from the sending bank and potentially foreign currency gains/losses. I am not sure how to properly reflect/record these movements in my Wave accounting platform.

I will try to make my case as generic as possible so it can be used by other members.

Details:

• My base currency in Wave is AAA
• Customers are invoiced in Wave in their local currency BBB
• Customers pay in a third global currency CCC (CCC and BBB have a fixed exchange rate but they are different currencies).
• I have an account in AAA and in CCC.

How it has been done so far:

1. I create an invoice in BBB or CCC currency.
2. Wave creates for me the entry in Accounts Receivable in my base currency AAA with the day exchange rate.
3. I receive the payment in CCC currency on a buffer account.
4. I mark the payment as received in this CCC currency against the invoice.
5. Wave adds an entry for the buffer account with the amount converted in AAA. The amount in AAA equals the amount that has been registered in Accounts Receivable for the invoice at step 2. Therefore, Accounts Receivable and the buffer account are balanced out. At this point no foreign exchange gains and losses are taken into account as I haven't converted CCC back to AAA.
6. At one point, I choose to convert the buffer account in CCC to an AAA bank account. This transfer, therefore, involves: banking fees and foreign currency gains/losses.

What are the lines to add in accounting to be able to reflect properly:

• foreign currency gains or losses
• banking fees
• marking the transaction as a transfer of currency rather than a new income?

Hope this is clear enough, happy to provide more details,
Thanks a lot!

Also, I've read through the following links but none seem to answer my question:

• Foreign Currency Invoices and Bills : https://support.waveapps.com/hc/en-us/articles/360035158192-Foreign-Currency-Invoices-and-Bills
• Transfers From a Foreign Currency Bank Account 
https://support.waveapps.com/hc/en-us/articles/360035494531

• Accounting for foreign currency transactions https://support.waveapps.com/hc/en-us/articles/208624186-Accounting-for-foreign-currency-transactions
• Transfer between Accounts w/ Different Currencies https://community.waveapps.com/discussion/comment/24242

Barsin

Hey @aliwave! I've been working with @ConnorM on this, and we're looking forward to finding a solution here.

So first off, let me preface by saying we in Wave support community are not accountants, and this is a bit of a robust accounting question. However there are of course many CPA's in the community, so hopefully someone will chime in with advice. On that not however, I will share some potential tools or advice that you can try.

• What is the buffer account you're receiving the invoice in? Is this an asset/bank account you have in real time which your funds are being deposited into?
• You'll want to do a regular transfer between your two currency accounts as you would in that second article you posted.
• You'll then want to create a journal transaction to move your equity gains and losses.
• Have you tried splitting your initial deposit before the transfer, and selecting the merchant account fee expense? I'm hoping that might work.

If anyone else with more accounting experience has any insight, please chime in!

aliwave

Hi Barsin, Connor!

First of all to answer your questions :

• The buffer account is indeed a bank account where the funds are deposited into currency CCC.
• I will make punctual transfers between the buffer account in CCC and my base currency account in AAA.
• I can't really split the initial deposit before the transfer as Wave doesn't allow this for multi-currency payments
  

However, going through https://support.waveapps.com/hc/en-us/articles/360035494531 again and your answer helped me get to a solution that appears to illustrate adequately the transfer in the general ledger, transactions and in CSV exported file.

I'll post the steps below in case it can help someone else:

1. I created a new expense/withdrawal from Accounting > Transactions
2. Split the expense into two categories: "Transfer to account in AAA" and "Bank Service Charges" for the transfer fee from the sending bank.
3. This, in turn, creates automatically a "Created Transfer" line in AAA currency. From there I just needed to:

• Adjust the total amount deposited to the real one
• Split the transfer with one, the base amount invoiced and second, the gain (here) that I made on foreign exchange.

Please let me know if you find something not properly done, of course!

Thanks again for the help,
Ali

aliwave

Actually, there is a little hiccup when using the method above. The Cash Flow graph shows now 2 transfers :
1rst inflow is the original transfer in account CCC and equals the exact amount converted at the invoice date
2nd inflow is the amount in my base currency that has been transferred (incl. profits on foreign exchange).

I believe the graph is technically correct but this is quite misleading in the analysis because this was just an internal transfer (rather than cash leaving and getting in the company).

Barsin

@aliwave
Your cashflow report is actually meant to show all of your transfers of funds moving in and out of your accounts. Are these balancing out or is it showing up as two separate expenses in your cash flow?

I will be honest, I'm a bit confused but I'm sure some further explanation would help us greatly!

aliwave

hi @BarsinA

Actually what's written on the Dashboard page, Cashflow graph definition is "Cash coming in and going out of your business".

Since both accounts belong to the business, in my understanding there should not be any cashflow out and in of the business. It is just an internal transfer between two accounts.

When money that is transferred between accounts it gives me a wrong, inflated picture of the amount that actually comes really in and really out of the business.

Hope this clarifies the matter, ali!

aliwave

@BarsinA Also, I understood why the transfer is shown in the Cashflow graph here. I initiated in transactions one expense and one income to materialise the currency transfer as indicated. Since it is an expense and an income in Transactions it shows as money in and out of the company. However, this is tricky because there is no new money in or out (except for foreign currency exchange gains or losses) here.
When I create some internal transfer in the same currency with a Journal transaction, this doesn't appear as cashflow in or out the company.

Isopo

I agree with @aliwave that the cashflow graph should represent cash coming in and going out of the business, which means that movements between your own accounts shouldn't reflect in's and out's.

And not that we are discussing this issue, shouldn't this apply also to those transactions that represent a 'Starting Balance'? I followed one of the articles that explained how to add a starting balance in this new version of Wave and it worked fine, but that money is now showing up in the cashflow graph

AlexL

@aliwave Although the cash flow Report measures money coming in and out of your business, it ultimately just measures money movement in general, a.k.a the flow of cash. When money moves in/out/around your business, it appears in the cash flow report.

@Isopo Can you send me a screenshot of the transaction that you've inputted as the starting balance?

Isopo

Hey @AlexL sure thing, here it goes!

EmmaP

Hey @Isopo! Can you confirm if the primary currency of this business is set to USD or ARS? It looks like the dashboard may be showing amounts in USD, which would be correct if the 'primary' currency is set to USD.

Isopo

Yes @EmmaP you are right, in this example it is set to USD. I've been playing around with the same scenario on a different business set to ARS, and the same thing happens.

AlexL

@Isopo Thanks for the screenshots. This is expected behavior. Because you're increasing the balance of your asset account, it shows up as such. In general, the Cash Flow Report under the Reports page may be a better solution for insight into your accounting. You can even filter out the starting balance date, which will remove the inflow of this amount from your reports.

Isopo

@AlexL I see, but isn't a bit weird that the reports show the starting balance for each account?

And then on this one again, the starting balance is = 0 but the transaction I labeled as 'Starting Balance' appears –of course– as an inflow of money

Why isn't the transaction I added as 'Starting Balance' actually affecting the real starting balance of the account. Or, in other words, what would you have to do to have a starting balance that is not defined in a transaction (just like it happened in Wave's old version).

Thanks!

ConnorM

Hey @lsopo! This one's looking funky, are we sure the dates on that first screenshot you've sent are in line with the dates on the starting balance transaction you've created? I just double checked our data in the back end for each of your accounts, and it looks like everything is in a good state, and nothing should be out of place as far as software concerns go - so that leads me to believe there's some accounting steps we're not quite hitting.