Troy said:
Exactly. I don't think you can.
That season is but 6 months away but OH YES I CAN.
I just didn't have the time yesterday.
I presume that by "you" you don't actually mean me, but "one",
i.e. that it's a general impossibility. But that's rubbish.
Anything that happens in a real world trading situation is
capable of being modelled in accounting terms and kept track
of in books. It's just a question of how to do it.
One obvious requirement in a set of accounts which must balance
at all times is that the various accounts within it can't be
denominated in different currencies which are free to fluctuate
with respect to each other, because the books wouldn't stay balanced.
Therefore the accounts need to be kept in a single "home currency"
but in addition you need to track, in the case of "foreign" accounts,
what the foreign balances are which are being shadowed by the "home
currency", and therefore what the last exchange rate was at which
those accounts were valued.
You have to recognise that fluctuations do give rise to real gains
or losses, and these needs to be accounted for properly whenever
the accounts are revalued to the latest exchange rate. One can do
these revaluations periodically (if you want an update), or just
when strictly necessary, which is on the occasion that any event
occurs which affects the balance of that account.
Doing this isn't really any different from revaluing assets even
where there are no currency exchange complications. You carry the
asset in the balance sheet at acquisition cost and accumulated
gain/depreciation, noting its book value as their sum, and when
you revalue it, e.g. you might appreciate an investment property
annually as a particular fraction of book value, the double
entry might be:
Dr £x Accumulated Gain (B/S)
Cr £x Unrealised Gain (P&L)
So, let's look at our German client whose accounts' home currency
would be the Euro. Client gives trader E1k, and trader initially
puts the money into his Euro-bank account.
Cr E1k Client
Dr E1k E-Bank
Trader transfers money to a dollar account.
Cr E1k E-bank
Dr E1k ($1k) $-bank
Trader buys futures.
Cr E1k ($1k) $-bank
Dr E1k ($1k) Investment at cost
Investments double in value.
Dr E1k ($1k) Investment accumulated gain
Cr E1k Client
Investments sold.
Cr E1k ($1k) Investment at cost
Cr E1k ($1k) Investment accumulated gain
Dr E2k ($2k) $-bank
Exchange rate plummets. $-bank balance of $2k revalued to E500.
Cr E1500 ($0) $-bank
Dr E1500 Client
Money transferred to Euro account.
Cr E500 ($2k) $-Bank
Dr E500 E-bank
Money returned to client.
Cr E500 E-bank
Dr E500 Client
Note the sequence of entries on the client account:
Cr E1000 paid in
Cr E1000 investment gain ($1000)
Dr E1500 currency exchange losses
Dr E500 withdrawal
Easy.