Foreign Currency Valuation

Problem: The accounting staff wants to be able to maintain foreign curren

open items in foreign currencies. Your task is to explain to the accounting
exchange rate type is, to define the valuation methods, and to perform ot
will allow the accounting staff to achieve their objectives

In order to create financial statements at a key date in SAP ERP, you need
valuation. The importance of defining foreign currency valuation is that fo
open items are valuated using it.
Once you have defined your foreign currency valuation and specified the
system will consider the following accounts and items during foreign curre
• G/L accounts in foreign currency related to foreig
• Open items posted in foreign currencies

In SAP ERP you have the option of performing currency valuation in group
currency) or in company code currency. You’ll look at how to define foreig
SAP ERP. But before defining these valuation methods, let’s take a quick lo

Exchange Rate Types

The different exchange rates for each currency pair are defined in the syst
rate type. The following exchange rate types are represented in SAP ERP u

• Bank selling rate – B (bank selling rate between currency pair)

• Bank buying rate – G (bank buying rate between currency pair)
• Average rate – M (average between selling rate and buying rate). You ca
selling rate or buying rate using average rate and the spread. This is done
or deducting the spread from the average rate.

Define Valuation Methods

Valuation methods determine the method used to perform foreign curren
part of the closing procedures in SAP ERP. During customizing, you can de
items such as bank balance, customer, and vendor. With valuation metho
for balances and for individual valuation. You have a list of valuation proce
example, the lowest value principle, the strict lowest value, and so on.
Let’s explore how to create foreign currency valuation methods for open i
 customers/vendors maintained in foreign currency. To do this, follow this
Accounting (New) ➤ General Ledger Accounting (New) ➤ Periodic Proces
Valuation Methods. Or you can use the transaction code OB59.
The Change View “Foreign Currency Valuation Methods”: Overview scree
button at the top of the screen. The New Entries: Details of Added Entries
(Figure ).

Foreign currency valuation methods for a customer/vendor

As part of customizing the valuation method, you need to update the following field

Valuation Method: Enter a four-digit code as the key for your valuation method.
This identifies your valuation method.
Description: Enter a short text description that best describes your valuation
method.
Lowest Value Principle: The valuation calculation is carried out per item total.
When this valuation procedure is set, the valuation is displayed only if exchange
loss occurs (when the difference between local currency amount and the valued
amount is negative).
 Strict Lowest Value Principle: Valuation calculation is carried out per item total.
The valuation is displayed only if the new valuation has a greater devaluation
and/or revaluation for credit entries than the previous valuation.
Always Evaluate: Allows revaluation to be taken into consideration.
Revalue Only: With this procedure, revaluation is considered when there is
exchange loss.
Document Type: Enter an appropriate document type in this field. This is the
key that distinguishes business transactions in SAP ERP. For example, SA is the
G/L document type.
ExchRate Type for Debit Bal: Enter B (the standard transaction at bank selling
rate) in this field. This exchange rate type takes into consideration the valuation
of foreign currency items having a positive balance.
Exch.Rate Type for Credit Bal: Enter G (the standard transaction at bank
buying rate) in this field. Unlike the standard transaction at bank selling rate, this
exchange rate type takes into consideration the valuation of foreign currency
items having a negative balance.
Exchange Hedging: By clicking this checkbox, it means that you want the
system to value your foreign exchange items at a hedged exchange rate. Hedging
is a procedure employed to eliminating risk that may arise from business
transactions in foreign currencies.

Exch.Rate Type from Invoice Reference: When you click this radio button,
currency valuations are conducted based on currency valuation based on
balance with reference to invoice reference

When you have updated the screen, click the Enter button on the top-left corner of the screen
confirm your entries. Then save your specification.
This next step in customizing foreign currency valuation is to create another foreign currency va
method for the bank balance maintained in foreign currency. Use this menu path: IMG: Financi
Accounting (New) ➤ General Ledger Accounting (New) ➤ Periodic Processing ➤ Valuate ➤ Defi
Valuation Methods. Or use the transaction code OB59. You will be returned to the Change View
Currency Valuation Methods”: Overview screen. Click the button on the top-left side of the
screen. Update the screen as shown in Figure .
 Foreign currency valuation methods for a bank balance

Click the Enter button on the top-left side of the screen to confirm your entries; then click Save

Prepare Automatic Postings for Foreign Currency Valuation

Exchange rate differences normally arise when you’re valuating open items in foreign currency. The settin
you carry out here will allow the system to automatically post exchange rate differences arising from open
items valuation and foreign currency balances to the accounts you specify.
Preparing automatic postings for foreign currency valuation is nothing other than simply assigning
accounts to G/L accounts where you want the exchange rate differences to be posted.

■Note Before you proceed with this activity, refer to “Chapter 6, Prepare Automatic Postings for
Foreign Currency Valuation” to create the G/L accounts you will need for your configuration

To customize automatic postings for foreign currency valuation, follow this menu path: IMG: Financial
Accounting (New) ➤ General Ledger Accounting (New) ➤ Periodic Processing ➤ Valuate ➤ Foreign
Currency Valuation ➤ Prepare Automatic Postings for Foreign Currency Valuation. Or you can use the
transaction code OBA1.

The Configuration Accounting Maintain: Automatic Posts – Procedures screen is displayed (Figure ). This
screen contains a list of exchange rate procedures and transaction keys that you assign to accounts
Maintaining an automatic posting for an exchange difference using an exchange rate key

In this activity, you will assign accounts to the following automatic procedures:
• Exchange rate difference using the exchange rate key (KDB)
• Exchange rate difference for open items—accounts receivable
• Exchange rate difference for open items—accounts payable

Exchange Rate Difference Using the Exchange Rate Key (KD

When valuating open items, such as business transactions, foreign exchange rate differences ca
or gains. Exchange rate difference loss is an expense and is posted to the Foreign Exchange Los
Likewise, foreign exchange differences realized are posted to the Foreign Exchange Gain accoun
Balance Sheet Adjustment account.
The Exchange Rate Difference Using Exchange Rate Key (KDB) process allows you to assign exch
rate loss and gain accounts to your valuation method. It also allows the system to automatically
or gains arising from exchange rate differences during open item valuation to the accounts you
you customize the exchange rate difference for open items in the G/L account later. Let’s look a
this. Select Exch.Rate Diff. Using Exch.Rate Key – KDB from the list of exchange rate procedures
and click the Details button at the top-left side of the screen.

The Enter Chart of Accounts dialog box will appear. Enter your chart of accounts ID (CA90) in th
of Accounts field. Click the Enter button to confirm your entry. The Configuration Accounting M
 Automatic Posts – Accounts screen is displayed (Figure 6-12). This is where you assign automati
procedures to the appropriate G/L accounts. Enter the appropriate G/L account for exchange ra
losses in the Expense Account field and the exchange rate difference gains (E/R gains) in the E/
Account field.

■Note L eave the first column (the Exchange Rate Difference Key column) blank. If you enter a
you have to specify this in the related G/L account master record; otherwise, your foreign curre
account will not work.

Click the Enter button or press Enter on your keyboard. The system will confirm your entries.
Save your work.
The next step is to assign the accounts to the exchange rate difference for open items (G/L account). To
return to the Configuration Accounting Maintain: Automatic Posts – Procedure screen (shown in Figure ),
click the Back button at the top-left of the screen.

Exchange Rate Differences for Open Items/GL Accounts

In this and the next activity, you will define exchange rate differences for open items for one Ac
Receivable and one Accounts Payable account. You can define several accounts for exchange ra
for several open items in the system, but we are restricting our definition of exchange rate diffe
open items to only two items in this exercise. This will give you a feel of how to customize exch
differences for open items. In your spare time, you can define more accounts.
First, let’s look at how to define an exchange rate difference for accounts receivable open items
settings you configure will allow the system to automatically post exchange rate differences to
G/L accounts when valuating open items and foreign currency balances for accounts receivable
You define the exchange rate difference for open items for account receivable using foreign tra
as the example. Select Exch.Rate Dif. Open Items/G/L Acct–KDF from the list of exchange rate p
Figure and click the Details button on the top-left corner of the screen.

Maintaining an automatic posting procedure for an exchange rate difference: Open

Items/G/L Accounts

The Change View “Acct Determination for OI Exch. Rate Differences”: Overview screen is displa
This is where you customize automatic posting procedures for the appropriate G/L accounts, as
G/L accounts for exchange rate differences realized for losses and gains, and assign the G/L acc
losses and gains arising from the exchange rate valuations. To input data, click the button at the
top of the screen. The New Entries: Details of Added Entries screen is displayed (Figure ).
 Specifications for automatic posting procedures for G/L accounts

Update the following fields:

Chart of Accounts: The chart of accounts you enter in this field will allow you to
assign the G/L accounts created in this chart of accounts to the appropriate fields
(G/L account, Loss, Gain Val.loss1, Val.gain1 and Bal.sheet adj.1) and allow the
system to carry out automatic postings to the specified G/L accounts.
G/L Account: Enter a G/L account for account receivable. This is the G/L account
to be updated. In this activity, we used a G/L account for Trade Debtor (Foreign).
Loss: Assign the G/L account where losses arising from exchange rate differences
are realized and posted.
Gain: Assign the G/L account where gains arising from exchange rate differences
are realized and posted.
Val.loss 1: Assign the G/L account where you want losses arising from foreign
currency valuation to be posted.
Val.gain 1: Assign the G/L account where you want gains arising from foreign
currency valuation to be posted.
Bal.sheet adj.1: Open items valuation of foreign currency adjustments of
receivables and payables are posted in the G/L account you enter in this field.

lists the G/L accounts used in this activity List of G/L Accounts for Automatic Posting Procedures—Accoun

After updating the screen, click the Enter button at the top-left corner of the screen or press Enter on
your keyboard. The system will accept your entries. Save your configuration.
Next, you will assign accounts to an exchange rate difference for open items–account payable. You need
to return to the Configuration Accounting Maintain: Automatic Posts – Procedure screen in Figure ,
where you will continue customizing. To do so, click the Back button on the top-left corner of the screen

Exchange Rate Difference for Open Items–Account Payable

Settings you configure here allow the system to automatically post exchange rate differences to the assign
G/L accounts when valuating open items and foreign currency balances for accounts payable.
On the Configuration Accounting Maintain: Automatic Posts – Procedure screen shown earlier in
Figure , select Exch.Rate Dif. Open Items/G/L Acct–KDF again from the list of exchange rate procedures
and click the Details button at the top-left corner of the screen. The Change View “Acct Determination for
OI Exch. Rate Differences”: Overview screen is displayed. To input data, click the button at the
top of the screen; the New Entries: Details of Added Entries screen is displayed. Using the data in Table ,
update the screen.

List of G/L Accounts for Automatic Posting Procedures—Account Payable

e able to maintain foreign currency and valuate
k is to explain to the accounting staff what
tion methods, and to perform other settings that
their objectives

a key date in SAP ERP, you need to define foreign currency

eign currency valuation is that foreign currency balance sheets and

ency valuation and specified the appropriate accounts, the

ts and items during foreign currency valuation:
rrency related to foreign currency balance sheet accounts
gn currencies

ming currency valuation in group currency (that is, parallel

ou’ll look at how to define foreign exchange valuation methods in
tion methods, let’s take a quick look at exchange rate types in SAP ERP.

rency pair are defined in the system and are differentiated by exchange
pes are represented in SAP ERP using the following symbols:

etween currency pair)

between currency pair)
ing rate and buying rate). You can obtain
ate and the spread. This is done by adding

d used to perform foreign currency valuation, which constitutes

. During customizing, you can define valuation methods for open
d vendor. With valuation methods, you can perform specifications
You have a list of valuation procedures to choose from. For
trict lowest value, and so on.
ncy valuation methods for open items related to
 currency. To do this, follow this menu path: IMG: Financial
ounting (New) ➤ Periodic Processing ➤ Valuate ➤ Define
ansaction code OB59.
ation Methods”: Overview screen is displayed. Click the
Entries: Details of Added Entries screen will appear

eed to update the following fields on the screen

for your valuation method.

describes your valuation

carried out per item total.

s displayed only if exchange
ency amount and the valued
s carried out per item total.
has a greater devaluation
us valuation.
consideration.
nsidered when there is

pe in this field. This is the

RP. For example, SA is the

ransaction at bank selling

consideration the valuation

transaction at bank
ction at bank selling rate, this
ation of foreign currency

ns that you want the

dged exchange rate. Hedging
y arise from business

lick this radio button,

cy valuation based on

the top-left corner of the screen to

eate another foreign currency valuation

Use this menu path: IMG: Financial
odic Processing ➤ Valuate ➤ Define
l be returned to the Change View “Foreign
on on the top-left side of the
firm your entries; then click Save .

ency Valuation

ms in foreign currency. The settings

ate differences arising from open

her than simply assigning

o be posted.

Automatic Postings for

your configuration

s menu path: IMG: Financial

sing ➤ Valuate ➤ Foreign
aluation. Or you can use the

reen is displayed (Figure ). This

hat you assign to accounts
change rate key

atic procedures:

hange Rate Key (KDB)

eign exchange rate differences can be losses

ted to the Foreign Exchange Loss account.
he Foreign Exchange Gain account and to a

process allows you to assign exchange

lows the system to automatically post losses
m valuation to the accounts you specify when
he G/L account later. Let’s look at how to do
list of exchange rate procedures in Figure 6-11

chart of accounts ID (CA90) in the Chart

The Configuration Accounting Maintain:
 his is where you assign automatic posting
riate G/L account for exchange rate difference
rence gains (E/R gains) in the E/R Gains

Key column) blank. If you enter a key here,

rd; otherwise, your foreign currency valuation

onfirm your entries.

r open items (G/L account). To

edure screen (shown in Figure ),

ms/GL Accounts
rences for open items for one Accounts
several accounts for exchange rate differences
definition of exchange rate difference for
a feel of how to customize exchange rate
more accounts.
r accounts receivable open items. The
ost exchange rate differences to the assigned
balances for accounts receivable.
ount receivable using foreign trade debtor
F from the list of exchange rate procedures in

ate difference: Open

nces”: Overview screen is displayed.

the appropriate G/L accounts, assign the
nd gains, and assign the G/L accounts for
nput data, click the button at the
reen is displayed (Figure ).
G/L accounts

will allow you to

e appropriate fields
1) and allow the

s the G/L account

Debtor (Foreign).
ge rate differences

e rate differences

g from foreign

g from foreign

ter in this field.

atic Posting Procedures—Account Receivable

the screen or press Enter on

ms–account payable. You need

ocedure screen in Figure ,
he top-left corner of the screen

s–Account Payable
nge rate differences to the assigned
or accounts payable.
screen shown earlier in
t of exchange rate procedures
ge View “Acct Determination for
ick the button at the
played. Using the data in Table ,