Multicurrency - Change behaviour of Unrealised Gains/Losses with Bank Accounts
Xero has a gap in handling Fx gains/losses.
It is great at both Realised and Unrealised on bills and invoices but it drops the ball on Cash at Bank. It treats it all as Unrealised, which is where the flaw is.
You can have an empty currency bank account which has a residual functional currency balance and has movements on the TB every month due to revaluation. This is clearly nonsense.
I have also been told to ignore the exposure column on the Fx report as it is meaningless.
For Fx gains/losses Cash is a document in exactly the same way that Bills & Invoices are. I.e. each cent comes into Xero at a functional value and leaves at a functional value.
So there should be a Realised Gain/Loss on the cash movement just as there is for the bill being settled.
This is currently being carried in Xero as Unrealised which is incorrect accounting.
There is no error in the total for Gains/Losses but the split is incorrect.
We used to calculate the amounts as part of the Revaluation process using a FIFO principle.
I.e. the remaining balance was matched with the latest receipts and the gain/loss on those was recorded as Unrealised. It was trivial to calculate the Realised as the balancing figure from calculating the total applicable Gains/Losses.
I don't know how you would make this calculation within Xero.
Oliver Dillon
shared this idea
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Kent Hutchings
commented
the incorrect unrealised FX bank revaluation on the P&L causes reporting issues especially when external parties such as banks review the reports.
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Vincent Chia
commented
Currently XERO record any FX unrealized gain or loss for outstanding foreign currency invoices and bills according to the exchange rate if the day when the invoice or bill is created and then calculate the unrealized gain or loss based on the daily rate movement. When the invoice or bill is paid, the actual gain or loss is then calculated and recorded as FX gain/loss based on the actual base currency amount received. This applies well to foreign currency invoices which are paid to a bank account in base currency.
However, this method should not apply to foreign currency invoices and bills that are paid into or out of a foreign currency bank account as there is no exchange gain/loss at this juncture as the foreign currency was not converted to base currency and the fx exposure is now in the foreign currency bank account. Only when you make a transfer from the foreign currency bank account to the base currency bank account (fx deal to convert the foreign currency to base currency) then the fx gain or loss is realized.
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Bryan Soriano
commented
Since we are using Central Bank rates to record spot rates when recording bills and invoices, there should be an option to import central bank rates to set the exchange rates in the currencies settings