Real Time Foreign Currency Revaluation

Explain about the entire real time process for month end for foreign currency revaluation.

By: Murthy 

Let me explain the process in Detail.  First you need to understand Process of Revaluation. I am not going into Customisation Paths.

Valuating Foreign Currency Balance Sheet Accounts Your foreign currency balance sheet accounts are valuated as part of the foreign currency valuation:
- The balance of the foreign currency balance sheet account, that is, the balance of the G/L account managed in a foreign currency, forms the basis of the valuation. 
- The result of the valuation is posted to the valuated account. 
- The exchange rate profit or loss from the valuation is posted to a separate expense or revenue account for exchange rate differences as an offsetting posting. 

Illustrations
The balance of your fixed term deposit account (foreign currency balance sheet account) has a balance of 1000 USD and 1700 DEM (see the following illustration, 1). 

An exchange rate devaluation occurs at the time of the valuation. 
The account balance is now valuated with an exchange rate of 1.6300. 
The valuation programs posts the exchange rate difference to the fixed term deposit account and to the account for exchange rate differences (see following illustration, 2). 
 
As a result of the valuation, a difference arises in your local currency. However, only postings in the foreign currency specified in the master record (account currency) are permitted to foreign currency balance sheet accounts. The exchange rate difference is therefore posted with a foreign currency amount of zero, and a local currency amount equal to the exchange rate difference. 

To valuate your foreign currency balance sheet accounts, you must define expense and revenue accounts for exchange rate differences.

Valuation of open items in foreign currencies
All open items in foreign currency are valuated as part of the foreign currency valuation:
- The individual open items of an account in foreign currency form the basis of the valuation, that is, every open item of an account in foreign currency is valuated individually. 
- The total difference from all the open items in an account is posted to a financial statement adjustment account. The account therefore retains its original balance. 
- The exchange rate profit or loss from the valuation is posted to a separate expense or revenue account for exchange rate differences as an offsetting posting. 

Illustrations
You have posted a receivable in the amount of 1000 USD, at an exchange rate of 1.7000. The local currency is DEM. The system saves the receivable in local currency in the customer and receivables accounts (1700 DEM) (see following illustration, 1).

An exchange rate devaluation occurs at the time of the valuation and the exchange rate is now 1.6300. The receivable in the amount of 1700 DEM remains in the receivables account. The program posts the reduction to the receivable (70 DEM) to a financial statement adjustment account and the exchange rate difference to the account for exchange rate differences from the valuation as an offsetting posting (see following illustration, 2). 

The receivables account and the relevant financial statement adjustment account are reported in one item in the financial statements. This means that the amount of the receivable in the financial statements is the valuated amount (1630 DEM).

To valuate your foreign currency balance sheet accounts, you must define certain accounts. 
You define these accounts per reconciliation account: 
- Expense and revenue accounts for the exchange rate differences from the valuation.
- A financial statement adjustment account, reported in one financial statement item with the valuated account. The valuation is therefore not carried out in the account itself; instead, it is posted to a separate account. This is necessary for example, since the accounts for receivables and payables are only updated by postings to the customer and vendor accounts. However, the valuation must be carried out in the G/L account area for the relevant reconciliation accounts. 

When carrying out a valuation of open items, you can configure account determination according to the currency type, so that, for example, currency gains in the local currency and in the group currency are posted to separate accounts.

You have the following options for valuating open items in foreign currency:
- Saving the exchange rate difference per document 
You can define that in addition to being posted, the exchange rate differences are saved per document. 

To do this, select the indicator Valuation for FS preparations on the Postings tab. 

The exchange rate differences saved in the document are taken into account for payment clearing:

- Unrealized exchange rate differences
When you valuate open items in foreign currency, the exchange rate difference determined is posted as an unrealized exchange rate difference. 
- Realized exchange rate differences
For an incoming payment, that is, when you are clearing the open items, the current exchange rate is determined. The unrealized exchange rate difference determined from the line item is taken into account. 

Example
If the first valuation results in an exchange rate difference of 30 DEM, and the current valuation results in an exchange rate difference of 10 DEM, an exchange rate difference of 20 DEM is posted and 10 DEM is saved in the line item as the final valuation difference. 

- Reversing exchange rate difference postings
You can define that the exchange rate differences posted are automatically reversed one day after the valuation run by an inverse posting. 

You therefore have the option of determining exchange rate differences at any point in time without this valuation being taken into account for the creation of financial statements or for payment clearing. 

To do this, select the indicator Reverse postings on the Postings tab.

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