Canada Foreign currency conversion

[Faisal Ahmed]

Hi,

I work in a company who has two bank accounts. One in Canadian dollars and one in US dollars. If we take out 5000 US dollars from US bank account and deposit it in Canadian dollars bank account. What should be the general entry for this transaction?

Thanks

 

[AGH the CPA]

DR canadian bank
CR US bank

 

[Faisal Ahmed]

DR canadian bank
CR US bank

Thanks but it is with the assumption that exchange rate is 1:1. What is the exchange ratio is 1:1.25. Also, at the end of year at what exchange rate should we translate the closing US dollars bank account to include it in our Canadian dollar financial statements?

Thanks

 

[kirby]

Need more background info
1. Are you keeping your books in CAD for both the Canadian Dollar bank account and the US Dollar bank acct? or is the USD account in a separate entity where the books are kept in USD?

 

[Faisal Ahmed]

Need more background info
1. Are you keeping your books in CAD for both the Canadian Dollar bank account and the US Dollar bank acct? or is the USD account in a separate entity where the books are kept in USD?

Books are in Canadian currency and USD account is in the same company. I am confused regarding the journal entry. Let say we transferred US$ 5000 to the Canadian dollars bank account. The exchange rate is 1:1.25. The journal entry should be like this. How to balance this entry?

Bank a/c - CAD $ 6250 ........ Dr
Bank a/c - US $ 5000 ........ CR

 

[Steve-LevelUp]

If your books to now allow for multicurrency, then you will need to keep track of the US balance in your account at the functional rate. So, presuming that there is $10,000 US in the account, the functional CAD equivalent balance should be $12,500 CAD. So, the entry proposed above, would be correct. Every month, you would need to revalue your US balance with a change in the exchange rate. So, if the rate went from 1.25 to 1.20, then the balance would change from $12,500 to $12,000. This results in a $500 exchange loss (Dr Exchange Loss, Cr Bank)

If you have multicurrency turned on in your accounting system, then much of this is tracked in the background.

 

[Faisal Ahmed]

If your books to now allow for multicurrency, then you will need to keep track of the US balance in your account at the functional rate. So, presuming that there is $10,000 US in the account, the functional CAD equivalent balance should be $12,500 CAD. So, the entry proposed above, would be correct. Every month, you would need to revalue your US balance with a change in the exchange rate. So, if the rate went from 1.25 to 1.20, then the balance would change from $12,500 to $12,000. This results in a $500 exchange loss (Dr Exchange Loss, Cr Bank)

If you have multicurrency turned on in your accounting system, then much of this is tracked in the background.

Thank you very much. Your response is helpful in understanding. Please if you could also let me know that how to treat such transaction if the multi currency feature is not turned on. I am just asking for my knowledge.

 

[Steve-LevelUp]

If you do not have multicurrency, then the balance on the balance sheet should always be in the converted amount. So every entry against the US dollar account should always be using the CAD equivalent. So, if you buy something for $50 US, then the entry should be (Dr expense $62.50, Cr US bank, $62.50) ($50 US x 1.25 - $62.50)

 

[Jim E. Cannon]

Dollars withdrawl from USD Bank Ac

Dr.Cash In Transit Ac (+A) $5 (equivalent CAD 6.25)
Cr.USD Bank Ac (-A) $5 (equivalent CAD 6.25)

Deposit into Canadian dollars

Dr.CAD Bank Ac (+A) CAD 6.5
Cr.Cash In Transit Ac (-A) CAD 6.5
Cr.Realized Gain/Loss Ac (-E,+SE) CAD 0.25
Dr.Cash In Transit Ac(+A) CAD 0.25