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How long can I keep my accrual for foreign conversion?

By Hank Bulmash |

Paul asked:

How long can I keep my accrual for foreign conversion? Should it be allocated directly to retained earnings?

Hank Bulmash answered:

Businesses that make investments or obtain assets in foreign currencies can have foreign exchange gains and losses on their investments.

Normally those losses are recognized for accounting purposes only when the investment or asset is sold and gain or loss is realized. At that point the gain or loss hits the income statement and also retained earnings.

Sometimes bookkeepers record the difference between the price paid in US dollars and Canadian amounts as an exchange gain or loss. For example, say a business buys inventory for $100 USD which costs $102 CAD when it's paid for. The bookkeeper might record the inventory cost as $100 and an exchange loss of $2. The correct treatment in that case would be to record the inventory cost at $102 CAD and ignore the USD price. When the inventory is sold, the $102 cost would then flow into the income statement as a cost of goods sold.

Revenues and expenses should be treated the same way

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