Unrealized FX Gains and Losses
Unrealized foreign exchange (FX) gains and losses represent changes in the value of open transactions caused by fluctuations in exchange rates. These adjustments ensure that your financial statements reflect the most accurate value of outstanding balances in foreign currencies.
Unrealized gains and losses apply to transactions that remain open, such as unpaid or partially paid bills.
How Unrealized FX Gains and Losses Are Calculated
At the end of each month, unrealized gains or losses are calculated based on the remaining open amount of a bill.
Calculation
In the same month as the bill (Month-end FX Rate − Bill FX Rate) × Amount Due
In subsequent months (Month-end FX Rate − Prior Month FX Rate) × Amount Due
Journal Entry
Unrealized FX gains and losses are recorded using the following journal entry:
Debit: Unrealized Gain/Loss
Credit: AP – Revaluation
Example:
Debit: Unrealized Gain/Loss — 100
Credit: AP – Revaluation — 100
Note The debit or credit position may reverse depending on exchange rate movement. If the current month’s FX rate is higher than the prior rate, Unrealized Gain/Loss is recorded as a debit. If it is lower, it is recorded as a credit.
When Unrealized Gains and Losses Are Reversed
When a bill is fully or partially paid, previously recorded unrealized gains or losses are reversed, and realized gains or losses are recorded instead.
See Also
To understand how FX impacts accounts payable workflows, see:
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