Journal transactions in different currency

dontworryaboutit

My LLC has sales in Canada and USA. My default currency is USD.

How do I add journal transactions for income in CAD? It defaults to USD which it isnt.

EnriqueFavaro

@dontworryaboutit

GAAP custom is to track in one currency and translate transactions from other currencies to your primary currency. For example, one way to to do this is at a point in time, so if your primary currency is USD, then you would have to convert the CAD amount to USD at the exchange rate of the balance sheet. In other words instead of tracking two currencies in your books, when you transact in your non-primary currency you need to convert it to your primary currency and track only one. The primary currency you use is often called the "functional currency".

As you can imagine, this creates a bit of a problem because let's say you made a sale in 06/04 and you record your CAD income and translate it to USD at 06/04. Well on 12/31 when you prepare you balance sheet the exchange rate changed very slightly and now you technically have more or less cash than expected because of the slight variation in exchange rates. Generally, you don't need to go back and change the income for that sale, you track those exchange rate variations in a separate reserve account that's not part of net income.

From the IRS's perspective, they just care about the conversion at the date of the transaction and not so much variations.

The large public companies that I have worked with before in a public accounting capacity have almost always bought financial instruments that neutralize differences (to an extent) of the exchange rate variances. A small nonprofit that I have worked with before didn't. In either situation, if you have audited or reviewed financial statements, a note will be included that discloses your exposure to foreign currency exchange rates.

Hope this helps,

Enrique
Financial consultant
enriquefavaro@protonmail.com