Exchange rate Gain/Loss

[Red Wood]

Hello,

We have multiple currency accounts. We fund our USD account periodically depending on the rate. Therefore the USD in said account is made up of many different GBP/USD rates. However, as we have credit terms with our international suppliers, bills are raised at the point the vendor raises their invoice. The bill on our system then uses a nominal GBP/USD rate, so when we pay 60/90 days later using pre pre-funded USD account it is posting either Exchange gains or losses on the P&L as opposed to accurately reflecting an updated COGS against each SKU by averaging out actual USD rate.

This technical means, although the P&L would be correct once 100% of the purchased stock is sold, the actual P&L calculation is incorrect since we are essentially reducing our profit in advance, all things being equal.

The software is QBO, is there a way around this without a journal entry, hope my question makes sense!

 

[MyAccountantOnline]

...our international suppliers, bills are raised at the point the vendor raises their invoice. The bill on our system then uses a nominal GBP/USD rate, so when we pay 60/90 days later using pre pre-funded USD account it is posting either Exchange gains or losses on the P&L as opposed to accurately ,,,

The profit or loss when you actually pay your supplier is due to fluctuations in exchange rates (not a change to the price of the goods supplied) so it's quite correct to show them as exchange rate losses/gains in the P&L rather than revising the cost of the stock bought.

 

[Red Wood]

Thanks @MyAccountantOnline

I understand the USD value of the stock is fixed, however, how is the actual GBP cost of the stock calculated in QBO if the USD used to pay a said invoice is made up of lots of 'balance top-ups' at varying different FX rates?

I didn't realise it was the norm for losses/gains on balance sheet items (Stock) to be posted on P&L rather than effect the GBP value of the stock! That leads me to how we actually determine the exact value of the stock so we can formulate sales prices based on a fixed margin.

I might not be making sense, but It's my best go at translating what's in my head to this forum!

 

[Bobbo]

Thanks @MyAccountantOnline

I understand the USD value of the stock is fixed, however, how is the actual GBP cost of the stock calculated in QBO if the USD used to pay a said invoice is made up of lots of 'balance top-ups' at varying different FX rates?

USD cost x exchange rate at the invoice date = GBP cost.

The fact that the USD used to eventually pay that invoice may (will) have cost you a different amount in terms of the GBP transferred from sterling accounts to fund the payment is not relevant. That difference is immediately taken to P&L as an exchange gain.

 

[Red Wood]

Thanks Bobbo.