Multi-Currency Features In QuickBooks 2009
Chief Mechanic in Accounts Payable, Accounts Receivable, Featured Articles, General, Inventory, Reports
January 24, 2009
For many businesses today, the economy is global. That means an accounting system needs to support multiple currencies, and QuickBooks 2009 meets that need with support for all global currencies. Let’s see how these features are implemented. We have screen shots of how it all works below, organized to match the menu and a typical workflow.
First, multi-currency support is off by default. It’s a company preference on the Edit->Preferences->Multiple Currencies menu. Once support for this feature is turned on for a particular company file, it can’t be turned off. When you track multiple currencies, you need to specify the home currency, which for US-based businesses is the US dollar. At the end of our review, we’ll see that one impact of tracking multiple currency transactions is that QuickBooks will automatically create an Other Expense account named Exchange Gain or Loss to record unrealized foreign exchange-related gains and losses.
To get oriented, access to multi-currency features are on the Company->Manage Currency menu.
QuickBooks 2009 offers the ability to download the latest exchange rates. As you can see from the Currency List captured after completing the download, exchange rates for only 12 of the most actively traded currencies were available. If you’re using a currency for which exchange rates aren’t readily available, you’ll have to enter that rate manually.
There’s also a Currency Calculator that can calculate the home amount, foreign amount, or exchange rate. The home amount (e. g. US dollars) is the product of the exchange rate and the amount of the foreign currency. The foreign amount is the result of dividing the home amount by the exchange rate. The exchange rate is the result of dividing the foreign amount by the home amount.
Home Currency Adjustment is used at the end of an accounting period to adjust your balance sheet accounts to reflect exchange rates on the balance sheet date. Balance sheet accounts are adjusted up or down by the amount of the unrealized gain or loss and posting the offsetting debit or credit to an Other Expense account. By default, the Other Expense account is named Exchange Gain or Loss. Until a home currency adjustment is recorded, balance sheet accounts represent the value in the home currency at the exchange rates used at the time each transaction was recorded. If the exchange rate has increased, your home currency buys more of the foreign currency, so the home currency adjustment will result in an unrealized gain. Home currency adjustments are calculated based on unrealized gains and losses. For example, for a customer invoice, gains or losses are unrealized until payment is received; after that, they’re realized and a currency adjustment is no longer applicable. QuickBooks 2009 provides reports for both unrealized and realized gains/losses, so we’ll see this in greater detail when we review these reports and the impact of entering a transaction that originated in a foreign currency.
Rounding out the Multiple Currency menu are 2 help tools. There’s a link to a multicurrency overview in the QuickBooks help file. There’s also a link to the Multicurrency Resource Center. Unfortunately, at this writing, this link just opens the QuickBooks integrated web browser and navigates to a general link that doesn’t contain information on using multiple currencies. Since foreign exchange is a new topic for QuickBooks users, hopefully Intuit gets a specific link up soon.
Let’s see how multi-currency accounting affects some typical transactions. Before we can enter transactions in a foreign currency for a customer or a vendor, we have to specify the currency in which all transactions for that customer or vendor will be recorded. If there are no transactions, we can edit an existing customer or vendor; otherwise, we’ll have to create a new record. We’ll start by creating a new customer and specifying that this customer will be accounted for using the €, or Euro. Next, we’ll produce a customer invoice but we’ll change the exchange rate to 1 Euro (€) = 1.5 US dollars.
At this point, because the customer invoice has not been paid, any foreign exchange-related gains or losses are unrealized. So let’s generate the Unrealized Gains & Losses Report by first entering the exchange rates for those currencies for which there are outstanding transactions.
Next, let’s record receipt of the customer’s payment in full. Both the invoice and the payment will be recorded in the same currency, the Euro (€). We’ll change the exchange rate to 1 Euro (€) = 1.25 US dollars to reflect a change in the exchange rate. Because this invoice has been paid, any foreign exchange related gains or losses have now been realized, so they’ll show up on the Realized Gains & Losses Report.
We’ll wrap up our review of this simple multicurrency transaction by looking at the impact on the company’s records. Press the 
Journal button (or alternately, Ctrl Y) while viewing either the customer invoice or payment to see the specific entries QuickBooks made. The Journal for our Invoice transaction shows the debits and credits for that transaction. Next, let’s go back in time to before we entered the customer payment to review the unrealized gain or loss that would be recorded by entering the home currency adjustment described above. That’s the adjustment at the end of an accounting period to reflect exchange rates on the financial statement date rather than the original transaction date.
Let’s start with the Profit & Loss by running the Profit and Loss Standard report from the Reports->Company & Financial menu and pressing the 
collapse button. Here we’ll see the default account Exchange Gain or Loss created by QuickBooks when we enabled multi-currency tracking in our company file.
Finally, let’s review the Balance Sheet. Note that in order to demonstrate another aspect of multi-currency, this balance sheet was prepared as if the customer payment had not been received. It’s also based on recording a home currency adjustment as depicted above, where we changed the exchange rate to 1 Euro (€) = 1.75 US dollars. We’ll see that our customer receivable has been adjusted up by $250 because of the change to the exchange rate between the date we billed the customer and the date we entered the balance sheet. The upward adjustment matches gain reported as an Exchange Gain or Loss. Since our Exchange Gain or Loss account was an Other Expense account, the gain is shown as a negative expense. Once multi-currency tracking is enabled, balance sheet subaccounts will be created automatically for every currency with transactions.
Multi-currency tracking is one of the most powerful new features of QuickBooks 2009. Now it’s time to generate more foreign business!
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How about the revenue and expense associated with the transaction? If you have made a sale, the other side of the receivable is revenue. Typically this is converted at the average rate for the period the revenue was earned – it appears that in quickbooks 2009, this would incorrectly be at the spot rate used when the invoice was generated. As we live in a global economy, hopefully quickbooks will enhance the multicurrency feature in the next version so that it is compliant with GAAP.
Reply to CMI’m not sure currency conversions at an average rate are required for GAAP. Take a look at FAS No. 8. Under paragraph 29, the use of averages is permitted, but not required.
Paragraph 13 states:
It seems FAS No. 8 encourages currency translations into dollars based on rates “on the dates they occurred.” This is exactly what QuickBooks 2009 does, so it seems to me it’s GAAP-compliant just as it is. Not using averages raises a separate issue of how firms entering large volumes of non-dollar denominated transactions can insure the correct rate was used in transaction entry.
http://www.fasb.org/pdf/fas8.pdf
Reply to Chief MechanicWe all want to use the GAAP rules……..
Does the explanation given above mean that without making an annual adjustment in the general journal, an unrealistically high balance on the A/R foreign item (includes unrealised gains due to currency fluctuations) will progressively float away from reality?
If so .. surely this is the opportunity for Intuit to create an easy proceedure to get the annual Balance Sheet right.
We use multicurrency over here in UK trading with Dollar customers and Euro customers so our home currency is Sterling.
The state of our Balance sheet is looking like a picture of fairy land as a result of unrealised gains.
All the best
Reply to Roger AventRoger
Roger, cheers from across the pond.
The easy procedure is already in place. All a user needs to do is download the latest exchange rates, and those will be used to produce realistic financial statements. The only problem that I see with this approach is that the burden is on the user to actually download current rates before preparing financial reports; otherwise the reports may very well “float away from reality” as you suggest. However, that burden is not really very different from other aspects of any financial accounting package. For example, you can print financial statements without ever having recorded depreciation or amortization. In the end, it’s up to the person doing the work.
As to your comment about unrealized gains/losses, are your gains coming from transactions that haven’t closed? Normally, these would close in a relatively short period of time, which would cause them to be realized.
Our multicurrency description is based on a firm with a home currency (in our example, the US dollar) trading with customers or vendors in foreign currencies. Typically, these trades would be closed out in < 1 year, and the accounting treatment for unrealized/realized gains/losses would be as accurate and timely as the foreign exchange rates a user downloads.
Different considerations would apply in consolidating a foreign subsidiary doing business in its own currency into the books of a home currency parent.
Reply to Chief MechanicWe are using multiple currencies, as we have offices conducting business in both the US and the UK. Is there any way (short of having 2 separate QB company files) to print financials in GBP and USD? Meaning, we want to have one “master” company with 2 subsidiaries. We need to be able to print reports for the US in USD and for the UK in GBP. Is that possible?
Thanks in advance.
Reply to Mary Stewart McGovernThis is a great question, Mary. Here’s 1 method that might accomplish what you want (albeit with some tinkering and effort): use classes. Create a class called “US Subsidiary” and another called “British Subsidiary”. Classify every transaction according to these 2 classes. For reports, you can use a Filter to include only 1 class. That would allow you to print a P & L for the US Subsidiary, for example. If you have separate accounts, customers, and vendors for each “subsidiary” denominated in each currency, you’ll end up with reports for each “subsidiary” in the local currency. The tinkering and effort will primarily come in keeping a balance sheet for each company in balance. Although you can use a class filter to print a balance sheet, the resulting balance sheet won’t necessary be in balance. Keep in mind that classes can only be used to track one aspect of your business, so if you’re already using classes for something else, this won’t work. This is a somewhat rough attempt to create consolidated financial statements, a task better suited to Enterprise Solutions than Pro or Premier. For simple P & L’s in different currencies, the result will probably be worth the effort. For a complete set of financial statements, this method will probably expose its limitations before too long. Given that once you turn on the multi-currency feature for a company file, you can’t turn back, you may want to try making a new company file and enter some sample data before pushing ahead with live data. Let us know how it goes.
Reply to Chief MechanicThanks so much for your reply. I’ll be sure to give it a try and keep you posted.
Reply to Mary Stewart-McGovernYou’re welcome. You should be able to print P & L’s in both USD & GBP provided you’ve applied classes consistently and you specify the class as the report filter. Balance Sheets are trickier, because they won’t automatically balance.
A company file is intended to print full financial statements (P & L, BS, Cash Flow) in a single currency. QB Premier also doesn’t support multi-company consolidations, even in 1 currency. So this technique is pushing 2 boundaries of QB. Don’t be too surprised to find limits.
Reply to Chief MechanicGreat tutorial (especially the pictures help).. thanks
I am a newbie, just a bit confused about some issues with multi-currency. Firstly in the above example, (assuming your home currency is USD) you invoiced the customer 1000 EUR = 1500 USD and received only 1250 USD. Isnt this a forex loss? Looks like it showed up as a gain (negative expense) on the Profit & Loss report?
Reply to AdamGood catch, Adam. For the income statement, we linked to the wrong screen capture, which we’ve since fixed. As you correctly pointed out, it is a forex loss, where before it was incorrectly shown as a forex gain. We also added a clarification on the balance sheet, since the balance sheet wasn’t intended to be in sync with the income statement. The balance sheet was intended to display another aspect of multi-currency accounting, where the exchange rate changes before the customer receivable is paid. The balance sheet was prepared based on recording the home currency adjustment shown, before the customer payment was received.
Reply to Chief MechanicThanks for that, also noticed the Balance Sheet 1750 EUR was explained, cool.
I have another (rather advanced) query… if we have bank accounts in more than 2 currencies how do cross-transactions work?
Like if my home currency is USD and I have also have accounts (say bank accounts to receive local payments in) in GBP and EUR, for every transfer between USD and the others its handled by the above automatically.
But how about if I make a funds transfer between the GBP and EUR account? I asked a friend and he says any such transfers can be ignored as reporting is done in the native currency only. But if I transfer 1000 GBP into 1500 EUR and then transfer 1500 EUR back to the GBP account and get back only GBP 900, should this be accounted in some way?
Thanks a lot
Reply to AdamMore good questions. FYI, we’re building our QuickBooks KnowledgeBase. Both of your questions are addressed directly there. On transferring funds between bank accounts in different currencies, check out this article. For how gains/losses are accounted for, check out this one.
Your friend is right only in so far as reporting is done in a home currency. However, he’s incorrect in that gains and losses still need to be accounted for. That’s what the Home Currency Adjustment function does. In the 2 links above, the GBP balance is upped by the amount of the gain, so you can re-patriate in USD the original deposit + the exchange-related gain or loss.
Reply to Chief MechanicThanks Chief Mechanic. Good articles those too.
I think I wasnt clear in my question. This article and the links to the 2 articles you gave explain about a transaction involving the home currency and a foreign currency. I was asking about the case of a transaction between two foreign currencies (not as rare as one might think!).
Reply to AdamSo if my home currency is USD and the transaction I am undertaking is between a GBP account and a EUR account, how does this impact the PL and BS?
The logic is the same as that outlined in those links, but the transactions become more complicated because QB only allows 1 foreign (relative to the home) currency per transaction. In your example, GBP & EUR are both foreign currencies if USD’s are the home currency. So, to transfer GBP to EUR you’d have to pass them through a dollar-denominated account (you could create a wash bank account for this purpose to avoid the transactions hitting your real bank account). In the end if EUR were worth less than what was put in, you’d face a loss. Keep in mind that QB only knows the exchange rate if you tell it the current rate. QB won’t know you’ve incurred a forex loss unless there is a new exchange rate on file in QB.
Reply to Chief MechanicI am in a situation where two different currencies are used concurrently. That is, I need to keep US$ based transactions in US$ and FC based transactions in FC. I would like to produce a consolidated report in US$ at then end of the period with exchange gains/loss measures. Would it be relatively easy to keep two sets of accounts separate?
Reply to SimonGetting confused with multicurrency! I understood the Home Currency Adjustment for ‘Unrealised gains/losses’ on funds held in foreign currencies. Not clear on what exactly Quickbooks consiers Realised gains though.
For example suppose my native currency is USD. I transfer USD100 to an EUR account amounting to EUR80 (Rate 1.25) and later transfer back the entire EUR80 to the USD account but this time get USD110 for it (Rate 1.375). Assuming there are no other transactions, Quickbooks doesnt report the $10 earned here due to favorable exchange rate as a ‘Realised’ gain? It only shows home currency adjustments as realised gains?
Reply to A. R.Do any of you guys know where/what is the download link for the QuickBooks software?
Thanks for the reply.
Reply to ehcxHi, I am just wondering if you’ll be able to help me with the multicurrency query. I have started to work for an american company which dediced to move to Ireland, registered as a new company and handed over all books over here.I have extracted some old data from previous company and created new company file, started from scratch and set up home currency as Euro. However company is still doing all the business and receiving orders and selling only in USD, to set up new customer accounts, I was wondering, should I set up currency in USD and would be able to track all figures in Euro for P&L and Balance Sheet later on. I am not quite sure how this multicurrency feature works. Thank you for any advice.
Reply to KatyVery informative. Thanks. I need to know as well if I can print checks in foreign currencies. I have accounts in GBP so I can send checks to people as honoraria and I am looking to open accts in other countries. I have to use a UK version of QB on a whole different computer so I can do this. As you can imagine, it is a pain. Thanks for any help on this.
Reply to Lester GreenbergLester, you can print checks in other currencies, so long as you follow a few guidelines, which we’ve outlined in our KnowledgeBase article:
http://www.qbgarage.com/forum/kb/can-quickbooks-print-checks-in-currencies-other-than-the-us-dollar/
With multicurrency support in the US QB, more and more businesses that previously used foreign QB versions for just this type of thing are “coming home” to the US version. Having 1 software product to learn and manage makes things much easier.
Reply to Chief MechanicI have used the multiple currency feature for months, and I must say that it was not designed for my situation and simply does not work for me. Here’s the problem:
I travel 4-6 months a year in foreign countries and have expenses in many currencies. These are charged on my US credit card, and when they clear, they come in as USD at an arbitrary exchange rate with an added fee. The unrealized gain and loss feature holds not the slightest bit of interest for me. When I record the transaction, I record it in the foreign currency and get a rough approximation of how much I spent using the current exchange rate. But when the transaction clears, the USD on the credit card statement is IN FACT what the transaction cost, and it is that amount that I intend to bill to clients and make a permanent part of my books. So let’s see how this plays out in QuickBooks.
1. Entering the transaction. I can’t just use a credit card line to enter the transaction – the system slaps my hand every time I try, because I never remember to open the edit credit card transaction screen.
2. Here is the reconciliation process when the charge clears, FOR EACH CHARGE:
Click on company, drop down to manage currency, drop down to currency calculator. click on calculate, drop down to exchange rate. Look up and hand enter both original currency amount and US currency amount. click calculate. click copy. Find the transaction and click on edit credit card charge. Paste in exchange rate box, then click somewhere else so it calculates. We’re somewhere between 15 and 20 clicks plus duplicate entry of two numbers for EVERY SINGLE EXPENSE I HAD FOR MONTHS!!!!!! Then there’s the fact that at random times QuickBooks wants to change the exchange rate for the day to what I entered, and if I say yes, it messes up other transactions for the same day that have to be RECALCULATED!!
How dumb is this? I feel so trapped with QuickBooks because I have a decade of company books on it, but to make me do this for every hotel bill and dinner for months on end is simply crazy. It is certainly clear that the designers of this feature never thought about credit card transactions in foreign currencies.
Reply to Mary PoppendieckMary,
Reply to AMeadWe have the same issue. I just wait until the credit card bill comes in and then enter the charges in the USD amount. If you are paying in USD the foreign currency is irrelevant. Of course I check all of our reciepts against the bills to make sure the foreign amount charged equals the reiceipt amount. I enter all USD and pay the bill in USD. Credit card exchange rates suck so they are unrealistic anyway. You would need to enter the foreign currency for each charge only if you are paying the bill in that currency. In that case enter the currency that you are billed in for each charge.
hope that helps,