Multiple Currencies Problem 4 Forward Contract Initial Transaction 1495

QuickBooks Online 2021 multiple currencies problem for forward contract initial transaction. Let’s get into it within two. It’s QuickBooks Online 2021. Here we are in our QuickBooks Online that multiple currencies problem for practice problem in prior presentations, we set up our free 30 day trials. So we can practice with the multiple currencies. And then we turned on the multiple currencies by going to Chicago up top, going to the accounting and setting and then Advanced Settings turning on multiple currencies, noting that once turned on, you can’t turn it back off.


So now we’re going to be opening up our financial statements by going to the tab up top right clicking on it, duplicate that tab, then we’re going to duplicate the tab again by right clicking on this tab and then duplicating it again with a double duplication to open up first our financial statements. So we have the double dupe here, but it’s a nice one, because it’s duplication.



And then we’re going to go down to the reports on the lead reports on the left hand side, first opening up the profit and loss report the P and the L, the income statement will then do the date range change up top, let’s bring the dates back to a 101 to zero to 1231 to zero, we’re going to go ahead and run that report, and then close up the hamburger nothing going on thus far, holding down control scrolling up just a bit to get to that one to five, to the tab to the left, down to the reports on the left hand side, this time opening up the BS balance sheet report,



which is actually full of really good information despite the initials, then we’ll do the date range change up top, we’re going to then say a 10120 to 1231 to zero, let’s go ahead and run that report. And then we’re going to close up the hamburger. So last time we put on the depreciable asset on the books, and we’re going to purchase it with Australian dollars that we’re going to pay in the future, therefore we had an accounts payable, but we’re gonna pay in Australian dollars that exposed us then to a currency issue, if there was some kind of problem with or change in the value of the currency. In this case,



if the Australian dollar got stronger, then that would be bad for us. So now we’re gonna do a forward contract to mitigate the risk. Let’s first do it in Excel over here. So we’ll jump on over to Excel. And we put this depreciable asset on the books here and resulted in this accounts payable in Australian dollars. So this is a payable. And so we want to say hey, look, I’m kind of worried about about the exchange risk of this here. So we can mitigate the risk by saying Why don’t I do a forward contract? And then I’ll put a receivable on the books.



So I’m going to get the same $100 of a receivable. And then if there’s a currency change a substantial one, I’ll have less exposure to the to that. So what we’re going to do then is we’re going to go to our exchange broker, and we’re going to say, All right, let’s, I’m going to say that I want to have a receivable, now the receivable in the foreign currency, so we’ll have a receivable in the foreign currency, and then we’ll pay the broker in dollars in the future.



So we’re going to put a receivable and payable on them. Now what we would like to do to make this like a perfect kind of system was is to put the receivable and the payable on the books at the same calculation using the spot rate as we did with a depreciable asset, you would think that would be the case, but the broker is not going to let us do that the broker is going to say no, because although that’s the current exchange rate, people are speculating that in the future 180 days from now, it’s going to be something different than that.



So you got to use the forward speculative rate. And so that’s what we’re going to do. So in other words, we’re setting up our forward contract to be paid the payable and receivable to be paid off in the same time period that we expect to be paying the accounts payable. So they’re kind of overlapping each other in timeframe. And then we got to put this one on the books, however, using the forward contract, because this one will become due on 330 1x.



Two, and the exchange brokers basically saying you got to use what we believe based on the market, what the exchange rate will be at that time. So this is where it’s a little bit different. So we’re gonna say this is going to be equal then to the 100,000. We’ll put this 100,000 Australian dollars times not the spot rate, but the forward contract rate. And now and so that’s going to give us then, did I pick up the rent? Oh, yeah, the 60,900 60,900. There’s the debit and the credit. So if we put this on the books, then we’re gonna say now there’s a debit for the 60,900.



And we’ve got then the credit down here on the payable for the 60,900. So you can see it’s not a perfect match, because now we have this item in Australian dollars here, this payable and then this receivable and Australian dollars, and they’re not exactly you know, the same because we had to use those separate exchange rates. But if there’s a drastic and unexpected change in the rates, then this should provide us with some mitigation because if, for example, the Australian dollar got a whole lot stronger compared to the US currency, then our receivable contract will turn out to be good,



we’ll have a gain there. And we’ll we’ll have a loss that will be netted out on our payable that we set out. So that’s how that basic concept will work because we have a payable on the books that we’re going to be paying in foreign currency, we can set up the forward contract to have a receivable receivable on the books that we’re going to be paid in foreign currency. And that should mitigate the risk that we will then have note that we’re not calling it a hedge at this point, just the mitigation of the risk. If it was a hedge, particularly, then the accounting for it might be a little bit different.



If you want more detail on those kinds of nuances, those details on it, you can take a look at our advanced financial accounting course, when we get into that in a little bit more detail. So then we’re going to go back on over or a lot more detail actually, we’re going to we’re going to go back on over and say, Well, what do we got to do in QuickBooks to do that? Well, we’re going to need a receivable for the exchange broker and a payable for the exchange broker and possibly a vendor.



Depending on how we’re going to put it on the books, we can put it on the books as either an accounts receivable type of account and accounts payable type of account, or we can we can make it an other current asset, other current liability, we took a look at some of those different options. And the prior to practice problems, I’m going to go back to just a journal entry this time not putting it on the books as a receivable and payable type account, but rather other current assets, other current liabilities, so it’d be more like a journal entry type of process.



So I’m going to go back on over, and we’re going to say, All right, let’s go back to the first tab here, hold down Control, I’m going to scroll down a little bit, we’re going to then go down to the accounting on the left hand side down to the accounting. And we’re going to add some accounts here. So I’m going to go up top and say I need a new account, we need a new account.



And we could set it up once again as basically a receivable and payable, which doesn’t have the currency items here, but would be driven by the customers and vendors which would then drive the receivable and payable accounts for the foreign currency that would help us out to close out the transaction, because then it would do that calculation for us to close it out. But it might be a little bit more complex to put on the books, because typically these will be put on the books with something like an invoice and a bill if it was a payable.



So we do have the option. And we could say, well, maybe I’ll set it up as an other current asset and other current assets. And I’m going to make this just an other current asset type of account. And I’m going to set this up as the the broker the broker receivable. And I’m going to call it an A UD, because this is going to be in the Australian dollar, I believe we can actually keep this account as US dollars, but I’m going to try to put it and we did that last time as an Australian dollar account here.



And so we can we can see the difference, this might give us an indication on the on the general ledger, what the Australian dollar equivalent would be on the balance sheet, we’re going to use the US dollar equivalent, we’re clear, we’re going to use basically journal entries to record it. So I think that either when we used would work, but I’m going to use the Australian dollar in this case, because this receivable will be in the Australian dollars. So although once it goes on our books, we’re going to record it in the US dollar equivalent for it. So we’re going to say okay, and this would be helpful, of course, if you had a beginning balance, but we’re not,



we don’t have a beginning balance in place. So we’re going to save it and close it. So there we have that one, then we’re going to open up the other side, I’m going to say new, and this is going to be a payable, which once again, we could just set up an accounts payable, but then we got to do a sub ledger and all that kind of stuff. So I’m going to say other current liability for the for the broker account, we’ll make it an other current liabilities account, I’m going to call it broker. So broker accounts payable are listed as let’s just call it payable, payable.



And then this one is the US dollar accounts, this one will just be endorsed. So let’s go ahead and save and close that. And then I’m just going to put this on the books as journal entries, this will be the benefit of having it as just journal entries, I don’t have to put like an invoice or deal with a deal with the sub ledgers. In this way, I could just enter a straight journal entry for this item. So we’re just going to say let’s journalize. And we’re going to put this on the books as of 12. One, I’m going to say 1201. I’m going to put Oh, the our first year is going to be 2000.



Whereas your your two is going to be 2001. For our practice problem. I’ll change this then let’s try changing this to the Australian dollar at this point. Now that would give us basically an exchange rate. Typically, we don’t have one here, but even if it gave us an exchange rate, it wouldn’t be applicable for us because we would have to use the forward contract rate. So the rate that QuickBooks would give us would be the spot rate, we would have to use the forward contract rate so I would still have to pick up the rate Which is going to be the point 609 for arc 8.609. So point 609.



And as a 12 one, then we’re going to be debiting, the broker receivable broker receivable. And that’s good, I’m going to put it in Australian dollars, it should then do the do the exchange for us 100,000. So I’m putting it in Australian dollars. This time, we might want a description, I won’t put one here though, we don’t need a name. Now as we would need if this account was set up as an accounts receivable type of account, because we don’t have to deal with the sub ledger that we normally would have to if it was an accounts receivable type of account, then the other side is going to go to the broker payable. So the broker payable account, there’s the 100,000.



There, once again, we don’t need a name as we would if it was an accounts payable type of account, because it’s an other current liability type. So there’s the 100, the 100, there’s our 60,009. There’s our 60,000 at nine. Note that it’s possible that because we’re using journal entries, if you just recorded this in US dollars and recorded basically your own exchange, because again, we’d have to calculate the exchange anyways, of the 60,009. And 60,009. You know, you’d be in the financial statements would have the 60,009 in it, in either case, but this could help us with that calculation for it.



And, but even still, again, we’d have to put in the actual rate, because QuickBooks wouldn’t give us the forward contract rate, but only the spot rate. So let’s go ahead and save it and close it. So save and close. And then we’ll check it out. Now note what happens when I save it and close it here. If I go down to the to the accounts receivable account, then it actually gives us or the broker receivable, it gives it the amount in Australian dollars, which is a little bit different. It’s saying hey, look, that’s us 100,000 Australian dollars,



whereas when we when we go to the financial statement, it’s going to give us the US dollar equivalent of it, which will be that 60,900 I believe it was, let’s check that out. Let’s go to the so that’s like a little bit, that’s a little bit of a difference if we assign it to a foreign currency account, or if we just you know, do the journal entries. And so I’m going to go up top and run the report, hold down Control, scroll up just a bit. So now we have the broker account on the books at the 60,900. So now notice, it doesn’t say 100,000 units, because we’re talking 200,000 units that we’re gonna pay in the future of Australian dollars,



but we have to put it on the books in the US equivalent. And then the other side is in the is in the broker payable which is just in the US dollar which should be USD not UDS. Let’s fix that, see if I can, I’m going to go to the first tab and see if I can fix that. Because that might bother some people, it kind of bothers me even. And I usually don’t get bothered by that stuff at all, really. So then I’m gonna go over here and edit it. And let’s call it US dollar, US dollar, and then save it back to the balance sheet, where it should be fixed and relieve people’s bothersome pneus from that. So there it is. I’ll bother people in other ways, I’m sure.



So there we have that. So it looks good. And so now let’s go nothing is happening to the income statement thus far. Let’s go ahead and print out our trial balance and check that out. And so we’ll hit the drop down or the burger hamburger. We’ll go to the reports. And check out the trusty TP the trial balance. And we’ll do the date range change up top from a 101 to zero to 1231 to zero we’ll run that report, close up the burger. And then just check this out.



We got the 100,000 to 69 and a 60. Check that out compared it to our Excel worksheet 100,069 and the 60. And then the 60, the 69 and the 100. That’s like symmetrical 60, the 69 and the 100. Although in there in reverse order here, but whatever there it is. we’ll print out the trial balances so that you can check them out on your own time and check your work. If you’re following along.

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