Foreign Currency Transaction Question

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  • September 29, 2014 at 6:54 pm #188984
    Anonymous
    Inactive

    When a US company imports goods from another country, they will issue a payable to the foreign factory or supplier usually denominated in the foreign countries currency. According to GAAP, a foreign exchange gain or loss should be recognized when the payment is actually paid at a different exchange rate.

    Let’s suppose however that the US company has an agreement with the foreign factory or supplier to settle the invoice according to the exchange rate in effect on the invoice date, NOT the day that it is actually paid.

    Can a US company do this and still be in accordance with GAAP? The US company would basically be paying the factory the same US $ amount that was originally entered into the accounts payable account even though payment is settled months afterward.

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  • September 29, 2014 at 7:01 pm #610603
    stoleway
    Participant

    This can be done if both parties have a contract/agreement in place which specifies that a fixed amount be paid regardless of exchange rate fluctuations.

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    September 29, 2014 at 7:02 pm #610604
    Anonymous
    Inactive

    sup stoleway

    September 29, 2014 at 7:09 pm #610605
    stoleway
    Participant

    Hey Nick, whats up? How is FAR treating ya?

    REG -63│ 84!!
    BEC- 59│70│ 71 │78!
    AUD- 75!
    FAR- 87!

    Mass-CPA

    September 29, 2014 at 7:40 pm #610606
    Anonymous
    Inactive

    Thank you very much!

    I know the FASB 830 – 20 – 30 -1 states:

    “At the date a foreign currency transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured in the functional currency of the recording entity by use of the exchange rate in effect at that date.”

    I did not know if the presence of a contract/agreement would preclude the US company from using the current exchange rate to pay an invoice.

    September 30, 2014 at 12:09 am #610607
    ShelahV
    Member

    Wouldn't this essentially be the same as using a forward/future contract? You mitigated your risk in the contract with the seller instead of a separate contact. So you'd still have a gain or loss per GAAP, right?

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