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ITGuy
January 2, 2021
Question

Tracking exchange loss (between accounts, not invoice-related)

  • January 2, 2021
  • 1 reply
  • 0 views

I have two chequing accounts at my bank, one in CAD and one in USD. I frequently transfer funds from the USD account to the CAD account at the bank's exchange rate. QBO detects the transfer and sets the exchange rate based on the value withdrawn from the USD account and the value deposited to the CAD account.

 

However, this exchange rate does not consider that the bank's exchange rate is substantially different from the official inter-bank exchange rate (as defined by the Bank of Canada).

 

For example, if I move $1000 USD from the USD account to the CAD account, the bank might give me an exchange rate of 1.271 and deposit $1271 into the CAD account. The official rate, though, is more like 1.276, meaning that my $1000 USD was worth $1276 CAD, but the difference ($5) went to the bank as their "fee" for doing the exchange.

 

I'd like a way to track that $5 difference as an "exchange loss", since it's a loss in value that I should be able to write off as an expense. How can I do this in QBO?

1 reply

Rebecca R
Rebecca R
January 2, 2021

HI there ITGuy,

 

Accurately tracking the foreign exchange gains and losses that occur due to changes in exchange rates is a crucial step in bookkeeping. I'm happy to see that you're looking for ways to record these losses in your books and this is a simple process when using QuickBooks Online. Let me go over this with you.

 

The unrealized foreign exchange gains or losses are only realized once a transaction has been completed, or when money has been collected or paid on a purchase or sale. So if you've entered an invoice or bill but haven't yet recorded the payment against it, that's an important step to take first.

 

If you haven't yet, completing a home currency adjustment will change the home currency value of your foreign balances, adjusting them based on a new rate that you set. Until you recalculate the home currency value of your foreign balances using a current exchange rate, your reports will reflect the home currency value based on the exchange rate used at the time the transaction was entered. Here's how to enter a home currency adjustment:

 

  1. Navigate to the Gear icon, then choose Currencies.
  2. Find the currency you need to adjust.
  3. Beneath the Action column, choose the arrow icon and select Revalue Currency.
  4. Pick a date to run a currency revaluation.
  5. Choose whether you'd like to see the revaluation based on the market exchange rate or a rate you choose.
  6. Choose the account you want to apply the revaluation to.
  7. Hit Revalue.

 

You can read more on how to Enter home currency adjustments for your foreign balances here.

 

The effects of these home currency adjustments on your Accounts Payable or Accounts Receivable are shown as an unrealized gain or loss, and in bank accounts as realized foreign exchange gain or loss. For more information on how to view these gains and losses as they are recorded in QuickBooks, please check out this article: Frequently Asked Questions about Home Currency Adjustments.

 

I'm confident that you'll have a better understanding of how these foreign currency gains and losses are recorded in your books. Let me know if there's anything else I can do to help.

 

I
ITGuyAuthor
January 2, 2021

Hi Rebecca,

 

Thank you for the info, although I think there's a misunderstanding in what I'm trying to accomplish. You mention "tracking the foreign exchange gains and losses that occur due to changes in exchange rates" and "when money has been collected or paid on a purchase or sale".  What I'm asking about, though, is unrelated to purchases/sales or changes in exchange rates over time. I'm asking about loss due to a bank having an exchange rate that is different than the official exchange rate.

 

For clarity, consider a scenario where I take out a USD$1000 loan and deposit it into my USD bank account. Then I go through the process explained in my example in the original post. There has been no purchase/sale, no invoice, and no loss due to change in exchange rate between when I created an invoice and when I received payment for it (since there was no invoice/payment), yet I've still lost $5 in value. How can I track that loss?

L
LauraAB
January 4, 2021

Hi ITGuy,

 

I appreciate the clarification on what you're looking for with tracking the expense to the bank for the exchange done between your CAD and USD accounts. I can see how this is a bit different than what my colleague outlined and I want to make sure you're able to record this so your books balance.

 

For this sort of question, I strongly recommend checking in with an accountant to learn the best steps. It may be as simple as recording the bank fee as an expense and setting up an expense account so you know why that expense is taking place. The other option would be to include the amount in the Service charge field when reconciling.

 

If you'd like to go the expense route, here's an article that can help: Enter and manage expenses in QuickBooks Online. Creating an expense account for this purpose involves heading to the Accounting tab and creating a new account in your chart of accounts. Once you've done that, it'll show up under the Category drop-down on the expense.

 

For the option via reconciling, simply head over to reconcile and then use the Service charge field before beginning to account for that amount. This is a less specific way to track it. It's also worth noting that if your bank is connected via bank feeds that this field won't appear as the program takes those transactions into consideration from the feed. Learn more about reconciling here: Reconcile an account in QuickBooks Online

 

QuickBooks Online can help you with connecting to an accountant via the My Accountant tab. There, you'll see a field to invite someone you're already working with as a user to work with you right in your books. Otherwise, you can take advantage of the Find a pro to help button to research QuickBooks-certified accountants near you.

 

Wishing you the best! Don't hesitate to reach out again if you'd like further clarification.

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