Multiple Currencies Cash, Accounts Receivable, & Accounts Payable 1310

QuickBooks Online 2021, multiple currencies cash, accounts receivable and accounts payable. Let’s get into it within two, it’s QuickBooks Online 2021. Here we are in our QuickBooks Online a multiple currencies a practice file in prior presentations, we set up a free 30 day trial so that we can then turn on the multiple currencies feature within it and practice it, we can do so by going to the cog up top, and we went over to the account and settings to turn on the multiple currencies, we have to go down to the advanced options on the left hand side, we then have the currencies option here, we chose this option and turned on multiple currencies.


Once on, I can’t turn it back off, what we turned on is the United States dollar as the home currency, if you have a different home currency, that’s okay, you can just look at it from the perspective of that home currency being your major, your major measuring tool, and then thinking about the other kind of currencies that you will be dealing with. And thinking about the accounts affected from them, cash accounts, accounts receivable, and accounts payable being the main items. Let’s close this back out.



Now, what we’re going to do to think about multiple currencies, because multiple currencies can be confusing, is to look at it in a more transparent way that being with the use of Excel. And we’ll go through problem by problem or Practice set up by practice setup, journal entry by journal entry entered in Excel, so we can kind of see what it looks like in just debit and credit format, we’re just in the accounts that will be affected. I know this Excel worksheet looks a little bit complicated right now.



But we’ll start off with one that doesn’t have any transactions in it will analyze the transactions and the impact on the financial statements of it in terms of just as trial balance over here, then we’ll do the same thing in QuickBooks. The reason this has beneficial is because when you use QuickBooks, it does have some great features, of course to automate the transactions, but it’s kind of like magic. When you put the information into the system. Even normal accounting, right, you enter an invoice and then magically, the financial statements kind of appear, you start to get an idea of what QuickBooks is doing.



But it doesn’t really show you whereas Excel, you can tie it out exactly and see exactly where everything is coming from from each cell. And so that’s the format that we’ll take a look at. Now, when we go back on over to the QuickBooks system. Remember that there’s a couple accounts that we’re going to be focusing in on, and those are going to be the cash, accounts receivable and accounts payable. Also note that you got to determine which currencies that you will be dealing with.



And you can find that in your currencies list by going to the cog drop down, lists item, and then the currencies here. Last time, we saw that we have the Canadian dollar that we’re going to be dealing with. In other words, the US dollar is our currency, then we’re going to be dealing with or thinking we’re going to be doing transactions with people either paying us or who we will pay in foreign currencies of Canadian dollars, Euro, the Mexican peso, those are going to be the three that we set up, we can add more currencies.



On the right, this is the one feature one thing that you got, of course, it set up when you set up the multiple currencies. The next thing you got to think about if the accounts that will be affected. For that, you can take a look at the accounting tab on the left hand side, you want to be considering then the chart of accounts, accounts receivable, accounts payable, and cash are usually the three that we’re kind of considering. So if I go back then to our Excel worksheet, let’s just think about that in a little bit more detail. as we as we go through this, this trial balance basically represents a balance sheet balance sheet and income statement.



The green accounts are assets, red liabilities, or orange. And then we’ve got the equity here retained earnings, and then the income accounts down here for revenue related to the foreign currency transactions in this case. So when we’re thinking about our financial statements, just remember that everything that we measure on our financial statements, we have to use a measuring tool, that measuring tool for us is going to be the US dollar. That’s what we use to measure anything.



So of course cash is going to be in US dollars if we’re talking about a bank account or normal bank account in US dollars. However, we also measure things like inventory in dollars, we don’t say we have so many units of inventory, we have to somehow convert those units of inventory to dollars. That conversion is complicated sometimes, and the equipment, machinery and equipment we have to measure in terms of dollars. We don’t say we got one forklift, we say we have this many dollars worth of that item.



If you think about that and apply the same concept to foreign currencies, then it’ll make things a little bit easier to basically think about because you’re basically doing the same thing to foreign currencies. The reason foreign currencies are confusing are a couple of reasons they’re a little bit confusing is one, you’re thinking hey, if I’m talking about like say Canadian dollars here, then



that’s another measuring tool, I can make my whole financial statements in Canadian dollars. Those are another unit of currency. So wouldn’t I measure it or put On the books in Canadian dollars, and for us, we’re going to say no, because we’re going to put it on the books in terms of US dollars, we have to measure the Canadian dollars in US dollars.



So therefore, you can think of Canadian dollars, kind of like you would with any other type of asset, meaning, if you had like securities, investments in stocks and bonds, you would still be measurement, you’d still measure those basically kind of in dollars. If you had, basically, so many units of a foreign currency, in a bank account, so many Canadian dollars in a bank account, similar to having stock, you would want to measure that foreign currency in US dollars.



So it’s the same kind of concept, whatever units of whatever we have, whether it be stock inventory, Canadian dollars, other foreign currency dollars, we need to take that and see what the US dollar equivalent is measured in US dollars. So that’s, that’s one concept, just the fact that the foreign currency can be used to measure our full financial statements, but aren’t, because we have to choose one measuring tool to measure the financial statements, we’re not going to use multiple measuring tools. And we’re using in this case, the US dollar, therefore every other foreign currency is simply kind of like an investment for us. If we have dollars basically in that currency.



The other thing that makes it a little bit more confusing than say, machinery down here, for example, if we put something like a building on the books, then under US law, typically generally accepted accounting principles, we don’t really adjust the building for fluctuation in the market value. Because we don’t know what the market value is for a building. It’s unique in nature, there’s no market that sells that exact building anywhere else, we don’t know what really the value of that building is any attempt to see what the value is, is an estimate.



Other places might might have different rules for measuring, you might take an appraisal and whatnot, in order to figure out what that estimate is. But that’s kind of like the idea. But you don’t have that restriction with the the currencies here currencies are, by definition are the reason they work well as currencies is they have the same unit of measure, I mean, they’re the same thing. They’re like a ruler. So they should all be the same. And they’re being traded every day, because there’s a market for foreign exchange.



And therefore, like stocks, where if you have a stock that has is on the market, it’s going to be easy for us to figure out what the current market rate is, or value is, because it’s just like every other thing that’s being traded every other Canadian dollars the same as this Canadian dollar, and they’re currently being traded. So we can figure out what their current day exchange rate is. And therefore, it would make sense for us to revalue periodically, our cash account, or our holdings in foreign currency, say Canadian dollars periodically in a similar way as we might do with like stocks, because it in a similar way has a market that we can do that.



Whereas we may not do that for something like equipment, because there is no market that has that unique piece of equipment or that unique piece of property, like a building or something like that on it. So that’s the other thing that’s a little bit confusing here. Once we value this, this asset at one point in time, if it’s a foreign currency asset, we could use that exchange rate to put it on the books. But as time passes, obviously, the exchange rate changes. And we know exactly what it is. So periodically, possibly adjusting entries possibly at the end of the month, we might want to revalue then the the currency. So that’s one issue.



Now the other issue, of course we have is that we might get paid like later if I sold something on account, and they’re gonna pay me later in Canadian dollars, and we measure our books in US dollars. Now we have a situation where we’re going to get paid later in some kind of measuring tool that’s different than our than our measuring tool. So we don’t really know what we’re going to get paid in terms of our US dollars, because the exchange rate will change from the point in time that we’ve made the sale to the point in time that we get the money.



So that’s going to complicate things a little bit as well. That’s why the accounts receivable if we’re going to get paid later, in terms of Canadian dollars, the accounts receivable still on the books as an asset and we got to value it basically in some way in US dollars as an asset and US dollars, even though we’re going to get paid in Canadian dollars. And of course, by the time we get paid, the exchange rate will be different.



So when we actually get paid, we’re going to get paid some different amount than when we agreed to get paid because of the differences in the exchange rates from the point in time that we have the agreement to the point in time that we get paid. So that complication is going to result in some kind of foreign currency gain or loss as we deal with that. Also with the payable if we had a payable down here, and we’re paying in some kind of foreign a foreign currency, that means that we told somebody else that we’re going to buy something and we’re going to pay them not in our currency, US dollars, but in a foreign currency.



Once again, that means that we have an obligation now in the future to pay but we don’t know exactly what we’re going to pay because we’re not going to pay in US dollars we’re going to pay in foreign dollars. So we’re gonna have to kind of figure out what the exchange rate is or what we should put it on the books for for our life. We’re looking at the point in time that we did the exchange. And then of course, when we actually pay them in the foreign currency units later, we’re going to have some type of gain or loss due to that, because again, the exchange rate will definitely be different.



So those are going to be the major accounts we’re going to be looking at, we’ll look at them kind of single one by one, the cash account, the accounts receivable, that we’re going to get paid in foreign currency and the accounts payable that we will pay in foreign currency. Those are now you could think of other accounts, you could say, well, what about a loan or something like that you could set up kind of other accounts in foreign currencies.



But generally, we think about, you know, these accounts, like if you if you’re going to have foreign currency type of transactions, these are going to be the ones that you want to set up, kind of in a foreign currency type of way, because they’re dealing with some kind of cash that you either have now that you’re going to be receiving later in foreign currency, or that you will be paying in foreign currency. So then if I go back on over, knowing that in QuickBooks,



that means that there’s a couple things we got to set up over here, we have our chart of accounts, we’re in the accounting tab, and we’re in our chart of accounts up top. If we set up our accounts, we know that if we set up a bank account, then we have to tell ourselves, if it is a bank account in foreign currency, if I’m holding something in foreign currency, say Canadian dollars, then I need to let the system know that so that I can then revalue that holding to US dollars, basically, periodically, whenever I need to do that, so that we can record our books in US dollars to reflect the fact that we’re holding some other foreign currency in this case,



Canadian dollars, we also know that the accounts receivable is going to be the other account we’ll be dealing with, we don’t have something here that says accounts receivable in foreign currency. But what will happen is that when we set up the customers will have to set up the customers as either our currency or some other foreign currency customer. And then that will be the thing that drives whether or not we have a receivable that’s going to be in foreign currency, or not the same with the payables here.



So we’ll have to set up the payable, we’re not setting up a special payable in this format, what will drive it is the vendor when we set up the vendor in foreign currency and then make sales to that vendor and promise to pay them in some kind of foreign currency, that’s way to what’s going to drive the accounts payable in foreign currency and the exchange issues. So we saw it with the with the receivable last time. So the next step we would have to look at is thinking about our customers, and our vendors that we expect to be receiving and pain in foreign currency.



So we looked at the customers last time, which we can see in the sales item here. So if I go to the sales, and I go to customers up top, we set up this customer here with a not very creative name, Canada, one, Canada, one cent, and then we set up Canada one here. And then in the payment information, we set up that there are Canadian dollar, which was down here, and it now there, it’s it’s locked in now because we set that up. So in other words, I won’t set up another customer right now. But if I was just to add a customer, just to look at it, hold on a second.



Let’s go back back here, back to the customers. And then I’m going to say new customer, just to see what it looks like before we lock it in, it would be down here, if I was to make a new customer, I would have to change, basically the currency and it looks like we can add currencies as well, which we don’t currently have in use as you add the customer to and that’ll that should unlock the currency as something that we’re going to be using.



And then I’m going to close that back out. And then of course, once we have that set up, when we create then a new item, an invoice, the normal invoice doesn’t have anything related to foreign currency, the default position will be that it will be in sale in US dollars. But if I choose the Canadian customer, now we have this foreign currency item down here. And if I was to sell something, let’s just say one, I would then and I’m not going to record this, but just note that we have now the total in the CA D Canadians and then it gives us the US equivalent.



So when I record this on the books, it’s going to have to in some way, we need to reflect the USD equivalent, even though we’re going to get paid 100 Canadian dollars. And that’s going to be a kind of we’ll take a look at that more in the future. But that’s the idea. And that’s going to be here. Now notice that that means that this Canada one, we can’t do any transactions with that particular customer in US dollars. Because that customer is what’s determining whether or not we’re going to have foreign customer foreign currency or not.



Therefore, if you deal with Canada one this customer in US dollars and Canada dollars, like sometimes they pay us in Canadian dollars, sometimes in US dollars depending on the sale. We have to set up two separate customers. One for Canada, one for us, one for Canada, one for the foreign currency. So closing that back out. We’re gonna have a similar situation. I’m going to say do you want to leave? I’m going to say yes. So we didn’t record it. I’m going to then say we have a similar similar situation for the accounts payable.



And also note the other the other form you can go to up top here. For the sale, we might make a sale in, say, a sales receipt, meaning we get paid at the same point in time, it’s not going to increase accounts receivable. Same thing here, there’s the Canadian dollars. So that means that when we get paid, we get paid, it’s going to go into undeposited funds, or possibly it would go into the checking account, possibly the checking account for the Canadian dollars or something like that. But we’ll have have the similar exchange transaction.



So this one sales receipt entries in some type of type of cash account, as opposed to increase in accounts receivable, but we got the same kind of issue because we’re gonna still get paid in the foreign currency. Closing that back out, we then see the vendor side of things. So vendor, we can go down here to the expenses on the left hand side, we can set up a vendor. And so now we got, let’s say, we’re going to add another vendor, and let’s call it CA, CA, D, CA D, the one I call it vendor one this time, so we can differentiate now we’re talking vendor here, then our focus is down here, US dollars being the default, we’re gonna say now we want the Canadian dollars.



So ca D vendor one is Canadian dollars. And if we save that, so now we’ve got this vendor, once again, that vendors locked into saying that we’re going to pay them in Canadian dollars. If we want to pay that same vendor in US dollars, we then need to set up two vendors, even though they’re the same company, one that will be for US dollars, one for Canadian dollars. If I then say we want the plus item up top and say we’re going to have, let’s say a bill, which would increase accounts payable, we’re going to say now this is going to go to Canada vendor one, and we got the same kind of thing here,



if I put the $1,000 that we’re going to be paying, that means that we’re going to pay 1000 Canadian dollars, but we have to value that then in the US dollars, when we put it on the books in the accounts payable in this case, then it’s got to be valued at this point in time and the US dollars later, when we pay the accounts payable, then we’re going to pay it in Canadian dollars and the exchange rate will be different. And that’s when we have this gain or loss due to that timing difference for the the foreign currency closing this back out, we could also then have an expense form or check similar kind of kind of tools here. Let’s go to the expense form.



And once again, if this went to the Canada, the CA d v one for the expense form, then we have the same kind of exchange item here, if I put the 1000 down below, we got that same situation this one of course saying that we’re going to be paying something right now out of the supposedly assumably the Canadian equivalent checking account, right in Canadian dollars, but we’re gonna have to value that then in the the US dollars. So that’s going to be those two forms for the decrease. So I’m going to close that back out.



So that can be a little bit confusing. All this can be a little bit confusing, but we’ll break it out one one item by a time we’ll look at it first in terms of a journal entry in Excel, and then we’ll think about it in a transparent way and then we’ll jump over to QuickBooks and enter it in in QuickBooks as as well so we can see how they’re going to tie out

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