I am confused about when the unrealized currency gain or loss should go to the PL account or OCI account. For example, you have a rate on the transaction date and if the transaction does not get settled at month end, you would have to record the unrealized currency gain or loss for the rate difference. Does it usually go to the PL or equity account? Thanks!
should unrealized currency gain or loss go to the net income or Equity account?
Answers
Anon,
The way you're describing your process (which sounds completely valid), the answer is yes, send it to OCI (equity) and don't settle through the P&L until the transaction clears. Technically this is proper*, and more importantly if it matches your process then may be far easier to maintain. In theory, if you cleared it directly through the P&L, that would probably be kosher (for example, why audits look at post-month-end transactions) and would still be within the spirit of the rule.
*It might matter whether you're operating on accrual
Assuming that the differential is de-minimus, I'd just stick with what works for your process. If not, then I'd check with your
KP
1
see below for correction; this is captured under 830
I assume you are referring to AR / AP balance. These are monetary items and need to be remeasured at month-end with the gain/loss going through the Income Statement as Other Income.
This is covered under ASC 830, check out this nice guide from EY explaining the codification (see section 3.3.): http://goo.gl/BR0vKR
Cheers,
Philipp
1
Correct.
The answer is the P&L in most cases. The accounting guidance found in ASC 830 requires you to record a transaction at a current rate. It then requires at each period end that you review all monetary assets/liabilities (AR/AP/Cash/most interco accounts/etc) and adjust their value to the current rate. That adjustment to the asset or liability account is offset to the P&L.
The one exception is an intercompany account that is of a long term investment nature that you do not expect payment back in the foreseeable future. That offset may go to OCI in what is generally referred to as the Cumulative Translation Account together with changes in the foreign functional subsidiary gain/loss created in the consolidation process.
Thank you all for the response.
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