Wave foreign exchange rate discrepancy between transaction types
SBenoit
Member Posts: 48 ✭✭
Hey!
I've noticed this issue a few times while working on clients' books, and I figured it's time I lay it out here. I did a search and wasn't able to find this specific issue posted before, but there seems to be a lot of discussion around exchange rates in Wave, so maybe I missed it.
Let's start with the screenshot:
Context: home currency is CAD, 'Wire fee clearing account' is a USD 'Money in Transit' asset account, fee of 17.50USD is deducted from the received payment on the way to the chequing account. I use this clearing account to capture the wire fee in order to mark the invoice as fully paid. I record the fee using the Expense button on the Transactions page, and record the payment to this account from the invoice for the same amount.
In the screenshot, you can see that the dates are the same, and the USD amounts are the same, but for some unknown reason, the CAD amounts are different, indicating that the exchange rate that Wave is using in the back-end is different for each of these types of transactions. Why isn't there a single table of daily exchange rates in Wave? Why would there be a difference at all here? Because of this bug, this account will always appear on the balance sheet with an incorrect balance of $0.40CAD.
Thanks for your help 
Sebastien.
Comments
Hi @SBenoit! Thanks for reaching out with this detail. We would be happy to look into this further. To do so, we might require some further information! Are you able to send me a message with the name of the business this issue is related to? Thanks!
Hi @SBenoit! The team have had a look and let me know that this is the expected behavior. In the screenshot provided, the first transaction is a regular transaction and the exchange rate reflects the exchange rate on the transaction date (1.3065810936). The second transaction is an invoice payment, which takes on the exchange rate applied to the invoice itself (1.3299694959), not the exchange rate on the invoice payment date. We don’t currently bookkeep gain/loss on foreign exchange if the invoice is not paid in the business currency. However, they have let me know that they are working to release a feature where you are able to revaluate in the near future, but we do not have any ETA.
Hi Emma, thanks for the quick response. That explains the behaviour perfectly, as when I change the date of the regular expense transaction to the invoice date, the amounts in CAD match up. Unfortunately for me and my clients, this forces us to choose between two bad options: Change the date of the expense to a date it didn't occur (possibly in a prior fiscal period, which is the case here), or let the underlying CAD account balance drift.
I'm glad to hear there will (eventually) be a multi-currency revaluation tool in Wave (hooray!) which I know will 'fix' this issue when used, but I do want to say for the record that I don't believe Wave should be using the invoice date exchange rate for foreign-currency invoice payments, and rather should use the exchange rate of the date of the transaction, for two reasons. a) that's when the event (payment) occurred, b) there are no gain/loss issues to resolve when an associated expense is booked on the same day (such as in this example). But now it's clear why Wave does it this way: to make sure that the arguably more important account (Accounts Receivable) doesn't drift instead. Currency exchange whack-a-mole, I suppose.
Thanks again for your time
Hi again,
When I line up the write-off date to the invoice date, there's still a small discrepancy that frustrates some of our pickier clients. Why would the exchange rates be different if these two transactions match the invoice date (April 15)?
Hey @SBenoit! When it comes to tax rounding at Wave, this process is completed on a line-item level. What this means is that each product line will calculate the tax, round to 2 decimal places, then do the next product line. At the end, it will add up all the line item tax calculations and plug that in as a total tax in your invoice. Unfortunately, there is no way around that in our software at this time.
As a potential temporary workaround, feel free to add/discount a new invoice item for $0.01 to charge the right amount and mark it as an adjustment entry for the time being. I know this isn't ideal, but this is our best bet for the time being, and we appreciate your continued patience!
Hi Connor, thanks for the help but there's no taxes involved in this problem, haha. This is dealing solely with the underlying exchange rate that Wave uses for its invoice payments (and separately for the bad debt expense we're recording to the same account).
Hey there @SBenoit
Currently, when a foreign currency bank account reaches a zero balance in the foreign currency, there is usually a home currency balance in the account. This is due to foreign exchange rate fluctuations over time as transactions are recorded. (You probably wouldn't see a balance if you deposited & withdrew a foreign currency the same day, but if you deposited last year and withdrew today, there would be a balance as Emma explained above.
Our current fix for this is to create journal entries. You want to zero out the balance in the business currency by creating a journal entry (the other side is gain/loss on foreign exchange), Wave calculates a corresponding foreign currency amount which is then recorded into the balance of the account.
Hi @BarsinA,
a) the dates are the same; invoice date, payment date, and expense date are all April 15th 2019 in my latest example, and b) the journal entries would fix one currency balance and offset the other, which is why we need the revalue tool that @EmmaP mentioned in her last post.
Hey @SBenoit! If you'd like, you can open up a support ticket with us for us to discuss your situation further! I think we might be able to troubleshoot some resolutions together there - feel free to link back to this community post in your ticket submission.
Hi All, I am glad I found this discussion because it is finally outlining the issues with FX revaluation that I have been having. Can I suggest a simple fix that Wave should implement until such time as they have an automated method of calculating and posting FX revaluation entries. Manual journal entries to record FX revaluation to the foreign currency asset or liability account and the corresponding income statement FX gain/loss account should be recorded in the base currency only; and not also in the underlying foreign currency. Such a journal entry would leave the foreign currency balance in the foreign currency asset or liability account untouched (and presumably reconciled against your bank). Wave should make a distinction between posting Transactions (which should impact both the foreign currency balance and the home currency balance of a foreign currency account) versus posting Journal Entries (which should only impact the home currency balance of a foreign currency account).
@willcn Thanks for providing those details. While we don't have these exact plans, we are creating upgrades to make our Accounting product even better including more changes to Foreign Exchange transactions. Take a look here if you want to read more up on this: https://community.waveapps.com/discussion/7837/coming-soon-transactions-page-for-mobile-and-tablet-quick-edit-features-and-more#latest
NicoletteB thanks for the information on the upcoming changes to foreign exchange transactions. The change you have outlined is a step in the right direction. Using the "fix" you have suggested will mean that in order to address a situation where you have a zero foreign currency balance (because you have withdrawn all the funds) but have a base currency balance you will have to post a transaction in the account using an exchange rate that sets the foreign currency amount to zero and the base currency amount to the base currency balance left in the account. This will most likely be an absurd FX rate. For example, if you have a British Pound account with a zero British Pound balance (because all funds have been withdrawn) and a U.S. Dollar base currency balance of US$1,000 you would have to post a transaction of say 1 British Pound at an exchange rate of 1,000. For larger balances the exchange rate will obviously need to be much larger. I hope Wave can handle incredibly large or small (many decimal places) exchange rates or otherwise this fix will not correct the situation.
Hi,
First of all, thank you for developing Wave Apps.
I also found this bug and it is quite annoying. I have accounts in multiple currencies: USD, GBP, EUR and CAD. However, Wave Apps considers only one to be my main currency (EUR). Whenever I introduce, let's say, 100 GBP into the GBP account and then spend those 100 GBP, the final amount should be 0 GBP (0 EUR). However, it shows me something like 0 GBP (5.5 EUR).
The bug is very simple to solve. Instead of applying currency exchange to the transactions, it should only be applied to the final amount of funds in each account, which should be updated every day according to the exchange rate on that day.
Your developers will not admit that this is a bug because probably someone in the Product team told them to do it this way, so this is the team that you should contact and let them know they introduced this bug. It might be there to fulfil some very specific use case but it doesn't fulfil the simple use case of someone having multiple bank accounts using different currencies.
The impact of this bug is that those 5.5 EUR are shown in every report. For example, in the Balance Sheet, I will think that I have those 5.5 EUR but actually they are not there. This just makes Wave Apps almost useless for any actual analysis.
Please fix this and let me know that you are fixing, otherwise, I will have to migrate to a competitor.
Kind regards,
Andre C
Hey @AndreC , thanks for your message. Our Product team is currently working on a new rewrite of the Transactions page which includes a fix to this issue. So, we are actively working on a fix! I don't have an ETA for when that phase of the rewrite will launch, but it is coming. Thanks for your patience while we build out a rewrite which addresses multiple issues at once & offers new features.
That's actually not a bug, but the expected behaviour when dealing with multiple currencies (other accounting platforms like QBO does the same). If you want to bring the value back in line (to 0.0 EUR), you can request from the Wave support team to revalue that foreign currency account, which will create a special journal entry that only impacts the home currency of the account, and resets it back in line based on the exchange rate of the date you choose in the past to make this revaluation. This tool isn't available directly to the user, but the support staff are able to help you with it
I use it all the time with clients' accounts.
I hope that helps.
Sebastien
Thank you for the info!
I've contacted the support in the meantime and I got the response that you mentioned.
The only issue with it is that I will need it quite frequently so if there would be a way of doing it myself it would be great.
Kind regards,
Andre
Great to hear! Thank you!
Andre
As a bookkeeper, I would only recommend doing this once per reporting period (annually, quarterly, or monthly, depending on your requirements), and for all foreign currency accounts, not just the ones that are at zero balance in the account currency. Doing it more often than that is just loading your account with extraneous journal entries that really aren't necessary.
That approach might work for reporting but not for checking current balances across multiple accounts as they are always wrongly reported as long as there is a new transaction there.
If the current day's exchange rate would be automatically used, then it would be accurate because if I were to exchange those funds back to the main currency, I would get what it says there, which is ultimate what matters for me.
Kind regards,
Andre
Hi all,
Has there been any update on this? Do you still have to contact the support team to revalue a foreign currency account or has here been some functionality added that fixes this problem?
Regards,
Will
Hey @willcn , as it turns out this situation remains the same at the moment.
Hi Alex
Could I ask if there's an update on this feature? It's been about a year now and would be great if a manual foreign currency exchange feature was released.