For those of us that work in the middle of the country, like Minneapolis, with no foreign shore close to us, currency is still a factor for our larger clients and clients doing business with a not-so-far-from-Minnesota Canada.

We find that many middle-market companies are finding recently that they are having to deal with currency issues.  Teaching people how currency modules work is not easy when the people being taught are not ready to learn what the software does yet.  Typically most accountants in this position need a refresher on what they should want it to do.

Mostly we find people don’t understand the different types of currency gains and losses. 
So here are your basics below if currency is new to you, yet you’ve been put in charge of making sense of it all.

There are 3 types of gains/losses that affect your P&L.

1. Unrealized Gains or Losses-these gains/losses are typically seen with open A/R and open A/P.  The invoices have not been paid yet, so the gain or loss has not yet been realized.  Still these losses are recognized on your P&L but typically reversed in the next period.

2. Realized Exchange Gain or Losses-these are the gains and losses that actually occurred against the transactions in the above paragraph now that the bills have been paid.

3. Revaluation Gain or LossThis gain or loss is related to adjusting the base currency amount for accounts that are denominated in a currency other than the base currency.
These adjustment amounts are also generally recorded in the P&L.

The only Gain/Loss that affects the balance sheet more is the:

Translation Gain/Loss:
This gain or loss relates to adjusting the reporting Ledger to bring this ledger in balance. The reason you have this type of adjustment is some accounts are converted at a rate other than the current rate.

Examples are Equity accounts are converted at a Historic Rate and P&L accounts are normally converted at an average rate.

A translation gain or loss can best be considered a “plug” number to keep the balance sheet in balance despite the way the YTD Earnings numbers come over from the P&L, or the way the historical accounts are converted. 

With Dynamics SL, we especially like that the software has a Financial Statement Translation module.  This eliminates the need to have Management Reporter report off of a separate table to do the currency conversion. 

The Currency Manager module is also well-designed.  It helps you automate the above exchange rate fluctuations with multiple currencies.