Whenever you carry out transactions in foreign currencies, you are confronted with the problem of fluctuating currency values. Over more or less long periods of time, the rate of a currency can fluctuate significantly and have significant effects on your balance sheet.
In order to best anticipate currency fluctuations, it is therefore important to adopt an effective buying and selling strategy in foreign currencies.
To help and support you in the execution of your foreign exchange transactions, DeftHedge offers you a SaaS solution particularly adapted for professionals who need to manage foreign exchange transactions.
In order to reduce your foreign exchange losses, adopt an effective strategy of protection against foreign exchange risks.
How to calculate an exchange rate loss ?
Like the exchange gains, exchange losses are calculated for each accounting year of a company. In order to know the amount of the exchange loss, it is necessary to recalculate the monetary element at the exchange rate in force when the accounting year is closed.
The amount obtained with the currency conversion will then be accounted for in the different accounts that make up the company’s fiscal year.
How do you account for the exchange loss ?
In order to make exchange gains and losses clearer, the General Chart of Accounts (GCA) has been amended. From 1 January 2017, exchange gains and losses must therefore be detailed in different accounts:
- Account 656: Exchange losses on trade receivables and payables
- Account 666: Exchange losses on receivables and payables
- Account 756: Exchange gains on trade receivables and payables
- Account 766: Exchange gains on financial receivables and debts
The detailed recording of foreign exchange gains and losses thus makes it possible to see the impact of the fluctuation in the value of currencies.
What is an active translation difference ?
At the end of the financial year, you must convert foreign currency receivables and payables into euros. This conversion will be based on the last exchange rate in force at the time of closing.
This may result in an asset or liability translation difference.
For more information, see : accounting and exchange rates
Depending on changes in exchange rates, the translation difference may therefore be an asset or a liability:
- An asset: an unrealised loss reflecting a decrease in receivables and an increase in liabilities.
- A currency translation adjustment liability: an unrealised gain reflecting a decrease in debts and an increase in receivables.
When the amount of the debts is different from the amount shown in the accounts, an active translation difference therefore appears in the company’s accounting result.