Ireland How to best deal with Dollar sales/transactions for Euro Sole trader accounts?

[ssfitz]

I'd love some advice on how best to deal with transactions in different currencies.
I run an e-commerce business from Ireland (Euro), and sell mostly in the US (dollars). I have a virtual US account to receive Sales proceeds in dollars and pay for Purchases and some expenses with these dollars. I also have some business expenses in Euros from the Irish side.

So far when I do my P&L I've just been converting the yearly Sales total figure from dollars to Euros using the yearly average and doing the same for all expenses, but I suspect this is not the right/best way to do it. I'd appreciate if anyone can advise a better way to do this?

Best,
S

 

[DrStrangeLove]

Actually, it's a pretty good way to do it, provided the average FX rate you're using to convert income statement items is transaction-weighted (the average is weighted by the size of each day's transactions over the year). I used to work for the international division of a large insurance company with business in over 50 functional currencies, and we used a process similar to what you've described in converting our books to Consolidated USD.

Even if it's only a simple arithmetic average or geometric average, it shouldn't be wildly wrong unless the EUR/USD FX rate has swung wildly and you have comparatively large transactions in the peaks and/or the troughs. Your balance sheet items would use spot rates as of the balance sheet dates.

I'd suggest you do your USD statements both ways (in USD first, and then convert that to Consolidated EUR). Any rollforwards like Inventory EOP and COGS converted from USD to EUR won't quite roll after conversion; they'll have an outage because of the currency conversion that would need to go into OCI and get accumulated in AOCI. But they should roll correctly in USD. Having both is a good way to make sure your converted statements are reasonable. Then you can add in your EUR-denominated transactions to get your final statements.

 

[ssfitz]

Thank you for the comprehensive answer. Much appreciated