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Foreign Currency Valuation in SAP ECC 6

Foreign Currency Valuation

This is the process to translate and adjust foreign currency amount of monetary accounts to local amount by a current suitable exchange rate (standard exchange rate). We carry out the foreign currency valuation before we create the financial statements. The valuation includes the following accounts and items:


Foreign Currency balance sheet accounts, that is , G/L accounts that we manage in a foreign currency (the balances of the G/L accounts in foreign currency are valuated) 2. Open items (Customers, Vendors, G/L accounts) posted in Foreign Currency( the line items are valued) Transaction Code FAGL_FC_VAL valuates open items in foreign currency as wells as the foreign currency balance sheet accounts. In order to carry out a foreign currency Valuation, we need to make certain settings in the customizing: Currency Customizing Defining the Valuation Method Defining the G/L account for exchange rate differences from the valuation. We must also specify balance sheet adjustment accounts for receivable and payable accounts Let us see the customizing or configuration part of foreign currency valuation in the IMG: Step 1: Maintain the Exchange rate type (T-code OB07) Path in IMG: SAP Net weavers -> General Setting -> Currencies -> check the exchange rate type. The below screen appears. Either we can use the existing entries or create a new entry. If we create a new entry save the data .For our example, we will be using the Exchange rate determination M Standard Translation at average rate.

Step 2: Maintain the translation Ratio: (T-Code: OBBS) The relationship between currencies must be maintained per exchange rate type and currency pair using translation ratios. This usually has to be performed only once. Path in IMG: SAP Net weavers -> General Setting -> Currencies -> Define translation ratios for Currency translation

We update the data through New Entries and save the data.

Step 3: Maintain Currency exchange Rate, Validity period (T-code: OB08) In direct quotation, one unit of foreign currency is quoted for the local currency, whereas in indirect quotation, one unit of local currency is quoted for the foreign currency. We update the data through New Entries and save the data to the system. Path in IMG: SAP Net weavers -> General Setting -> Currencies -> enter the exchange rates. In our example, we will maintain indirect quotation between USD and EUR

Step 4: Configuration of Valuation Method (T-Code: OB59) The below screen will appears. We need to define the valuation method/procedure by creating a new entry.

Path in IMG: Financial accounting (New) General Ledger Accounting (New) Periodic Processing Valuate Define Valuation Methods. Once we select the new entry, another screen to select the valuation procedure and the exchange rate determination appears as below:

Let us further discuss about the various Valuation procedure/ method available for configuration Lowest Value Principle : The valuation is only displayed if the valuation difference between the local currency amount and the valued amount is negative. That is, an exchange loss has taken place. The valuation is calculated per item total. Items with invoice reference are viewed together. Strict Lowest Value Principle : The valuation is only displayed if, as a consequence, the new valuation has a greater devaluation and /or a greater revaluation for credit entries than the previous valuation. The valuation is calculated per item total. Items with invoice reference are viewed together. Always valuate : If we select this procedure, revaluations are also taken into consideration. Revaluate Only: If we select this method system only does a revaluation if applicable but does not do devaluation where there is exchange loss Reset: If we select this parameter then the open items are valuated at the acquisition price. This way the valuation difference is set to Zero. The old

valuation method is reset. The account determination is reversed: The revenue that arises is posted to the expense account. Exchange rates are types are attached to the valuation method. Determine rate type from Account balance : If we select this field, the account balance/group balance in the relevant foreign currency is used to determine the exchange rate type. This is relevant for account balance revaluation. A document type SA is attached to the valuation method. For our example, we have strict lowest value principle as valuation method. Step 5: Define the valuation area: Path in IMG: Financial accounting (New) General Ledger Accounting (New) Periodic Processing Valuate Define Valuation area. Once the below appears, we can create a new entry and mention a valuation area along with the valuation method and company code currency. For our example, we have the R0 as Valuation area and R001 as Valuation Method.

Step 6: Assign the Valuation areas and Accounting Principles: Once the valuation area is defined in the above step assign with the accounting principle as shown in the below screen. As per our example, valuation area R0 is assigned with accounting principle GAAP Path in IMG: Financial accounting (New) General Ledger Accounting (New) Periodic Processing Valuate Assign Valuation areas and accounting principles.

Step 7: Create two G/L accounts to record the Gain/Loss from the foreign currency valuation and one Balance sheet adjustment account: We need to create two G/L account in FS00, One for Gain/Loss Unrealized Foreign Currency Revaluation and the other one for Gain/Loss Realized Foreign Currency Revaluation Also we need one more Balance sheet adjustment account for Receivable or payable (adjustment account) to post the foreign currency valuation of open items. (Since we cannot post the reconciliation account directly) For our example, we have 700400 as Gain/Loss Realized Foreign Currency Revaluation, 700420 as Gain/Loss Unrealized Foreign Currency Revaluation and 121020 as Customer receivables domestic (adjustment account)

Step 8: Assign the G/L accounts to prepare automatic postings for Foreign Currency Valuation: (T-code: OBA1)

Path in IMG: Financial accounting (New) General Ledger Accounting (New) Periodic Processing Valuate Foreign Currency Valuation Prepare Automatic posting for Foreign Currency Valuation.

Once we enter the above Screen, to enter the GL accounts, we need to double click the transaction KDF Exchange rate Diff: Open items/GL account to valuate the exchange rate difference in open items. We can see a dialogue box asking for Chart of Accounts. We can also see arrow. If we click arrow, the system will ask us to enter our Valuation area and the GL accounts and Balance sheet adjustment account will be defined at the valuation area level

Alternatively we can enter the GL account at chart of account Level as shown in the below screen.

In the below shown Screen shot we need to update the GL accounts as a new entry. In Our example, we have 121000 as GL account (Reconciliation account) for customers, 700400 as Realized Gain/loss on Exchange rate determination, 700420 as unrealized gain/loss in the Valuation tab and Finally 121020 as Balance Sheet adjustment account for Customers.

Save the data.

Now, let us customize automatic posting for Exchange rate difference in foreign currency balances e.g. Bank Accounts held in foreign currency.

We need to go back to the Maintain FI configuration: Automatic Posting Procedure Screen (OBA1) and need to double click the transaction KDB Exchange rate Diff: Using Exchange Rate Key to valuate the exchange rate difference in Foreign Currency . Once we double Click the option for chart of account and valuation area will pop up same as the transaction KDF.

Alternatively we can enter the GL account at chart of account Level as shown in the below screen. In this screen we will enter the Exchange rate difference Key, Expense account and E/R gains. Exchange rate difference key can either be blank or we can enter a key with 4 digits e.g. 0001. In case we create this exchange rate key then the same has to be updated in the GL code of the foreign currency account i.e. control data tab which has the field exchange rate difference key. Only when it is attached the system will revalue the foreign currency account. Expense account and E/R gains need to be filled with the GL account created for unrealized foreign exchange loss or gain. The loss/gain on Revaluation is unrealized and will be reversed in the next month. We can have two separate accounts or the same account

Save the data. With this the configuration Part for foreign Currency valuation is completed. Execution of the Foreign Currency valuation:

A Foreign currency valuation is necessary if vendor/customer account contains open items in a foreign currency. The amounts of these open items were translated into the local currency at the time they were entered using the current exchange rate. The exchange rate is probably different at the time of closing, and open items need to be valuated again. A program valuates the open items using the new exchange rate and enters the valuation difference in the valuation line items. It also creates the valuation posting. Path in SAP Easy Access: Accounting Financial Accounting General ledger Periodic Processing Closing Valuate FAGL_FC_VAL- Foreign Currency Valuation (New) Let us see how to execute the foreign currency valuation. For our example, we have one foreign vendor 100032 and we will valuate on a key date 29-03-2011

Before we start with the execution of the foreign valuation, we need to make sure the exchange currency rate is maintained in the transaction code OB08 First Step: Post few entries in FB60/FB70 in foreign currency .In our example we take FB60.

Second step: Enter the company code, Key date and Valuation area in the First part. In the second part, First tab fill the Batch Input name to process the batch, Document date and posting date to post the entry after valuation. We should not check create posting now. We should first see the test result and then come back and click create posting.

In the second part, Second tab select the vendor / customer/ GL account for which we need to valuate the open items. In our example, we are going to do the valuation for one Vendor 100032. So select the valuate vendor and fill the vendor account number. If we select the customer, vendor and GL and leave the account number blank, the system will valuate all the accounts.

a) b)

Once updated, click F8 to execute. The output will appear in the screen as shown below. Points to be noted are: Messages box should contain a green box and should not show any errors. Select the amount in document currency and document currency from the layout and check out the exchange rate.

If we want to see the Currency and exchange rate of the document/Invoice, double click the transaction. The system will lead us to below screen. If we click the document header , we can see the currency and exchange rate.

Third Step: Once we have checked the details and confirm that there is no error, we will go back to first screen, First part and check the box Create posting.

The output will be with the box showing 3 messages and 2 posting.

If we click the 3 message box we get the display of the messages as below

Fourth step: We need to process the batch input. Either we can go through the path menu system ->Services -> Batch Input -> Session or use T-Code SM35.

System will take us to the below screen where we need to Process the batch

Once we click the process tab we get a dialogue to select the processing mode and additional function.

Once the batch processing is completed we see a tick mark in the second column. If we get any errors we need to check the log and fix the errors.

Once the process is completed, check the GL account. The entry will be posted and reversed on the next day. See the below screen shot of the GL account.