Skip to main content
D
DirtToOil
March 2, 2021
Question

Managing Differences in Payments versus Invoiced Amounts

  • March 2, 2021
  • 1 reply
  • 0 views

I am seeking guidance on best practices for managing imbalances between invoices issued and funds deposited due to foreign exchange.

 

The scenario is simple:

- Invoices are issued in CAD$  

- Client converts CAD4 to USD$ and cuts a cheque  as remittance against the invoice

- Company deposits cheque into a Canadian bank account

 

Always there is a difference in the amount invoiced versus in CAD$ versus the amount deposited in CAD$. sometimes positive, sometimes negative.

 

What is the best practice for accounting for entering the transactions such that invoices and funds deposited reconcile professionally? 

1 reply

LeithG
LeithG
March 2, 2021

Hi DirtToOil

 

Generally, it would be considered odd to be paid in a currency other than invoiced.  If I attempted to pay a USD invoice in CAD, the supplier would likely return the payment to me asking for payment in the requested currency.

 

That aside, the transactions should be as follows:

Upon receiving the payment in USD, you would convert that to Canadian based upon the deposit amount in your bank account, entering the deposit as USD, and entering the exchange rate (if you're using multi-currency).

If the payment ends up short or over, it's up to you to decide how you want to handle the short/overage.

 

For example, let's say that they pay you, and due to exchange the payment ends up short by $5 CAD.  Would you accept this invoice as paid, or would you expect the customer to cover the short?  If you accept it as paid, you would need to add $5 CAD to the payment to reconcile the invoice, and balance that against your profit/loss on exchange account.  If you expect the customer to cover the short, you simply leave it as is with $5 remained owing on the invoice.

D
DirtToOilAuthor
March 2, 2021

Thanks lashedlifter. I appreciate your response. I have a case where the monies received are $250 less than the invoiced amount due to currency conversion. I definitely don't want to ask the client to make up the difference so I will accept the loss due to currency exchange. My thought is that the client account will be out of balance so what kind of entry do I need to make to balance the account?

 

 

LeithG
LeithG
March 2, 2021

No worries DirtToOil, that's what the community is here for!

I'd be real upset if a customer stiffed me for $250, but I'll leave your customer relationship management to you to contemplate.

 

The entry would be as follows:

DB Bank account for the payment the customer paid

CR Accounts receiveable for the payment the customer paid

CR Accounts receiveable for the difference in the invoice and the payment

DB Gain/Loss on Foriegn exchange expense

 

Terms & ConditionsAccessibility statement