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For the companies whose business involve different currencies, it's always a matter on how to keep the exchange rates when recording a transaction in their softwares. Many softwares do not support figures other than a Default Currency which is usually the National Currency. For this reason, many accountants need to have an extra book-keeping (for example in EXCEL) to retain the exchange rates when recording a transaction which is in a different currency than the default one.
Imagine your default currency is in EURO and your company sells a product or service to another company who asks you for an invoice in USD. On the other hand, when a partial payment is done by that company it would be in USD and you need to keep the remaining balance, too, in USD.
But, note that all recordings in your software must be in EURO because it is your company's Default Currency. So, in a normal way of accounting, you need to manually exchange the USD Debit and Credit amounts for that transaction into EURO and save it in your software, while keeping the balance with that company needs to have an external EXCEL-like sheet to write down the Debit (the invoice amount) and the Credits (the payments) in original USD values to know the balance in USD. This is in fact a parallel accounting that, in long term, would cause you a lot of issues.
Now, imagine that your company has many clients each of which having different currencies who always ask you for their Statement in their own currency, not yours.
Another problem
arises from this issue: if the exchange rates are not always fixed to a value and have fluctuations, they will bring you gains and losses, too, all of which must be translated before closing a Financial (Fiscal) Year. In this case, if you keep the exchange rates in a different book other than your Accounting Software, you will need to do the translation calculations on your own.
While I was designing Fractal Accounting software (in 2009) for the chain of companies I work for, I faced this problem that our accountants had with their previous softwares which didn't support Multi-Currency Accounting. So, I tried to implement an efficient way of keeping both books at the same time in the software. I finally solved this problem by a simple approach; keeping each line-item of the Vouchers in the following format:
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| Transaction |
Issued Voucher |
On
Invoice 1001
(in USD)
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On
Invoice 1002
(in EURO) |
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On Receipt 1 |
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On Receipt 2 |
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On Receipt 3 |
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Now,
on getting
Statement
of Accounts |
Fractal will report the statement for this client with the balances
in all currencies which this client has worked with.
| Remaining Balance in USD |
10,000 |
| Remaining Balance in EUR |
35,000 |
| Remaining Balance in AED |
179,375 |
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On Receipt 4 |
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On Receipt 5 |
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