Accounting for

FOREIGN CURRENCY
TRANSACTIONS
 What is a FOREIGN CURRENCY
TRANSACTION?

“It is a transaction that requires settlement

or payment in a foreign currency.”
 TERMS to UNDERSTAND

EXCHANGE RATE
April 14, 2023 Foreign Currency Pesos in Foreign
in Pesos Currency
US Dollar ＄ 55.28 0.01809

● SELLING SPOT RATE

● BUYING SPOT RATE
Selling spot rate > Buying spot rate
Selling spot rate - Buying spot rate = SPREAD
COMMON FOREIGN CURRENCY
TRANSACTIONS

1. Importing and exporting goods on credit

with the receivable or payable denominated
in foreign currency.
2. Borrowing or lending denominated in
foreign currency.
3. Entering into a forward exchange contract
to buy or sell foreign currency
ACCOUNTING FOR IMPORTING AND
EXPORTING OF GOODS
❖ At the date of the transaction
➢ Closing exchange rate or the spot rate on the given date
❖ At the balance sheet date
➢ Adjust the balances denominated in foreign currency using
the exchange rate in effect of the statement of financial
position.
➢ Foreign exchange (forex) gain or loss is recognized
❖ At the settlement date
➢ Convert the settlement using the prevailing selling/buying
spot rate
➢ Foreign exchange (forex) gain or loss is recognized
ILLUSTRATIVE PROBLEMS
Translation of
FOREIGN FINANCIAL
STATEMENTS
ACCOUNTING PROCEDURES
1. Receive foreign entity’s financial
statements
2. Translate the statements in foreign
currency to Philippine peso
3. Consolidate the translated foreign entity’s
accounts with the Philippine company’s
accounts
IAS 21:
1. Translate ALL items of financial position, except
share capital and pre-acquisition surplus, at the
CLOSING RATE.
2. Share capital and pre-acquisition surplus should
be translated at their HISTORICAL RATE.
3. Translate ALL items of income and expenses in
profit or loss at the AVERAGE RATE or as the
accounting policy requires.
IAS 21:
4. Translate ALL items of other comprehensive
income at the AVERAGE RATE or rate ruling at
valuation date.
5. Retained earnings brought forward should be
based on the prior’s acquisition profits in the
presentation currency
6. Interim dividend paid at the actual rate ruling at
the date of payment
Note:
Cumulative exchange differences (translation
adjustments) result from translating all assets
and liabilities at the closing rate and
stockholders’ equity using historical rates and
weighted-average rates.
End of Presentation