Domestic Invoice & Taxes But Paid With Foreign Currency

accuritts

Greetings,

I issued my customer a CAD invoice with CAD sales taxes but they paid with a USD check. The USD check was deposited in my USD checking account. After clearing, I purchased the CAD amount and made a little over $21 due to the exchange rate.

How can I record the deposit but also apply it to the invoice with correct amount reporting everywhere including the sales tax? I've attempted this by recording the payment using the CAD amount in full into the USD checking (with exchange rate) but of course the CAD amount appears in the USD checking account.

I would appreciate some input on how to approach this.

Thank you!

Barsin

Hey there @accuritts

Can you elaborate a bit more on what you mean by "After clearing, I purchased the CAD amount..."

Is this a foreign gain transactions that you can categorize it as? The more details you can share on this the better. Thanks so much!

accuritts

Hi @BarsinA

Thank you for reaching out. I am not an accountant and still trying to grasp concepts, so here is the situation:

1. I am based in Canada and sent an invoice to a customer in CAD funds with Canadian taxes for the amount of CAD$337.05.
2. The customer paid me with a USD check for USD$260.
3. I deposited the USD check on Mar 20, 2020 into my USD Checking account (CAD bank) and left it untouched as USD.
4. On March 30, 2020, I purchased CAD from the USD$260 which ended up being CAD$358.80 (CAD$21+ profit). Essentially a direct transfer from USD checking to CAD chequing.
5. I do not have my bank accounts connected (all manual entries).

I also don’t have an ‘Undeposited Funds” or “Unrealized Gain or Loss” account (as per some posts suggest), and not quite sure how to use them if I did.

So here is what I need to do:
1. Apply USD$260 payment to CAD$337.05 invoice and date for March 20, 2020.
2. ‘Sell’ USD$260 in USD checking for CAD$358.80 on March 30, 2020 and place in CAD chequing
3. No ‘crediting’ the customer, just record CAD$21+ as additional income.

This is a messy situation to track but my customer has continued to pay in USD when I have repeatedly asked for CAD. I need to know how to handle this for future payments from them.

Thank you again and look forward to your input.

Kristian_G

Hey @accuritts!

I'm not an accountant either, and this is definitely getting into more advanced accounting territory here, but I'll do my best to suss out the situation here and provide a functional workflow. If you can, it would be good to try and speak with an actual accountant to verify what the best way to deal with these kinds of transactions would be. Okay, here goes...

I think the best place to start in this case, would be with the deposit of USD funds, and transfer into CAD funds. We've got a good Help Center article about transfers between foreign currency accounts for a reference. All that you've got to do in this case is head to your USD account in Wave and create an income transaction which will represent the deposit of the USD check for $260 into this account.

Then, you can create an expense transaction in the same account, also for USD$260, and categorize it as a transfer. When you select the transfer option from the category drop down menu, you'll be given a number of options to choose from. You should select the CAD account where the invoice payment will be recorded. The exchange between USD to CAD will be done automatically, but once the transfer has saved you can simply edit the amount on the CAD side to CAD$358.80.

At this point you should have a deposit transaction in the USD account (USD$260), an expense transaction in the USD account (USD$260, one half of the transfer), and a deposit transaction in your CAD account (CAD$358.80, the other half of the transfer).

From here, you can then manually apply a payment to the invoice in question for CAD$358.80. Once you do so, an associated invoice payment transaction will get created. You can split this deposit and apply CAD$337.05 to the invoice so it's paid in full, and then categorize the remaining ~$21 as a Gain on Foreign Exchange (you may need to create a new account for this).

Hope this helps!

accuritts

Thanks @Kristian_G.

I attempted something similiar but left it alone.

You said, "All that you've got to do in this case is head to your USD account in Wave and create an income transaction which will represent the deposit of the USD check for $260 into this account."

What income account is this linked to (default is uncategorized income)?

NicoletteB

@accuritts Reading through Kristian's response, it looks like he is referring to the Canadian bank account the funds would have been transferred to. This is not an income account but a Cash/Bank account - this would be categorized as the Transfer from USD account.
In general though, we aren't able to provide specifics on what income or expense accounts you should be using since we don't have the full picture of your books. If any Wave Pro accountants are able to jump in on this discussion to provide more insight, that would be awesome!