Settlement of exchange rate differences in Smartbooks.AI when processing GL postings in foreign currencies
Smartbooks.AI is a platform that intelligently automates the analysis, reporting, consolidation, and budgeting of financial and operational data. This blog explains how the system converts foreign currencies and the automatic entry made to report the result of exchange rate differences.
Situation
A subsidiary reports in USD, while the parent company reports in EUR – this is a 100% subsidiary, but Smartbooks.AI can also automatically consolidate investments with a smaller ownership percentage.
- Equity changes in the balance sheet: Converted at the end-of-month exchange rate
- Profit and loss statement: Converted at the average monthly exchange rate
- Exchange rate differences are recorded in an exchange rate difference result account
Example Data
| Month | Average Monthly Exchange Rate (€ / $) | End-of-Month Exchange Rate (€ / $) |
| Jan | 1.10 | 1.12 |
| Feb | 1.08 | 1.09 |
| Mar | 1.05 | 1.07 |
Subsidiary in USD
- Revenue per month: 100,000 USD
- Expenses per month: 70,000 USD
Conversion to EUR of the Profit and Loss Statement
Monthly revenue and expenses are converted at the average monthly exchange rate.
| Month | Revenue ($) | Avg. Monthly Rate | Revenue (€) | Expenses ($) | Expenses (€) | Profit (€) |
| Jan | 100,000 | 1.10 | 90,909 | 70,000 | 63,636 | 27,273 |
| Feb | 100,000 | 1.08 | 92,593 | 70,000 | 64,815 | 27,778 |
| Mar | 100,000 | 1.05 | 95,238 | 70,000 | 66,667 | 28,571 |
| Total | 300,000 | – | 278,740 | 210,000 | 195,118 | 83,622 |
Exchange Rate Difference Calculation
The profit and loss statement is converted using the average monthly exchange rate, while the balance sheet is converted using the end-of-month exchange rate. The difference is recorded as an exchange rate difference result.
- Conversion of profit (EUR) based on monthly exchange rates:
- Total profit from the P&L: 83,622 EUR
- Conversion of profit (EUR) based on end-of-month exchange rates:
- YTD profit in USD (90,000) converted at the end-of-month rate (1.07): 84,112 EUR
- Exchange rate difference:
- 84,112 EUR (balance sheet) – 83,622 EUR (P&L) = 490 EUR
- This difference is recorded as an exchange rate difference result.