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Online store buys products in Canadian dollars, sells in U.S. dollar

By Emily Denyes |

Alex asked:

I have an online store and buy most of my products in Canadian dollars and then sell it in U.S. dollars. In order to convert the U.S. funds into Canadian I usually do a forward transaction so the actual exchange rate might be different from what was on the date of invoicing.

I have two questions:
First, can I use an average monthly exchange rate for my daily invoices/transactions and if so how should I calculate it? Second, how can I register in QB the forward or the basic forex transactions?

Emily Denyes answered:

When selling in a foreign currency, the sales should be converted to Canadian dollars as soon as the sale is made. If the U.S. funds are not transferred directly to your Canadian bank account (often the case if you have a separate U.S. account or if your funds are held in your merchant account) there may be an exchange gain or loss.

If the U.S. dollar drops in value from when the sale is made to when the funds are transferred, you will have a loss. If the U.S. dollar raises in value from when the sale is made to when the funds are transferred, you will have an exchange gain.

Some people do use a monthly exchange rate. This method is not as precise and if rates fluctuate widely, can create large discrepancies that make reconciling and correcting accounts difficult. The sales for the month in U.S. dollars would be converted using the average monthly rate. Differences between the converted revenue and the actual amounts deposited into the Canadian bank account would be recorded as a gain or loss.

Because of the extra complexity when foreign currency is involved, I would suggest having your annual financial statements prepared by an accountant with foreign currency experience to ensure that these transactions have been properly recorded.

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