accounting treatment

Hi harmeet this is ofcoarse not the proper treatment, i mean, first to issue bill with one amount and then change the amount according to foreign exchange fluctuation...

You need to create FOREIGN EXCHANGE FLUCTUATION A/C... Now whenever you book profit or loss due to fluctuation in foreign exchange (i.e the difference between amounts you recorded at the time of sale and actual receipt), should transfer to this account.

Wait, i can give u example too...

Let say, current rate of 1 Euro = Rs. 60 (assume).. And after 3 months it is Rs. 61..

Now, if to day u make sale of, let say, 100 Euros, then entry will be :

Customer A/c Dr. To Sales a/c......... Rs. 6000

Similarily, after three months when u receive actual payment, ur entry will be

Cash a/c Dr. by Rs. 6100 To customer A/c 6000 and To Gain on Foreign Exchange Fluctuation A/c 100...

As such, there was always a hidden profit of Rs. 100 in ur transactions, then y not to show it in P& L now??

Foreign exchange fluctuation a/c should be debited or credited according to requirements and then the balance at the end of the year should be transferred to profit and loss account..

yes the abovementioned treatment is absolutely right. when u receive extra amount as given above, it is not generated by sales but due to exchange rate fluctuation. Hence, it is not proper to credit sales A/c and trading A/c for the same. thaat is why it is taken into P/L A/c.

Regards, CA Shakuntala Chhangani

Thanks a lot brother-----------

Harmeet Singh Bedi

Yes harmeet this treatement is correct  i want to add one thing that if we are not recieveing amt form debtor/customer till 31 march then also we have to book exchange fluctuation for example say we have done sale of  unit 2000 @ 10 and dollar rate is 20 we have done sale on credit  on 1st january so we do entry

debtors/customer  a/c Dr 400000

To sales a/c 400000 on

1st january 

but if from this debtor we are not recieving amt till 31st march then for closing we have to book exchange fluctuation for this see Dollar rate on 31st march lets say it is 25 now we have to pass entry on 31 st march

debtors/customer a/c debit 100000 (25-20=5*2000*10)  we booked 25-20=5 rs and multiplied it with 2000*10

To Exchange Fluctuation A/c100000

now we transfer this exchange fluctuation a/c in p&l a/c with 100000

Originally posted by : D н ! я σ ĵ
	Let say, current rate of 1 Euro = Rs. 60 (assume).. And after 3 months it is Rs. 61..   Now, if to day u make sale of, let say, 100 Euros, then entry will be :   Customer A/c Dr. To Sales a/c......... Rs. 6000   Similarily, after three months when u receive actual payment, ur entry will be   Cash a/c Dr. by Rs. 6100 To customer A/c 6000 and To Gain on Foreign Exchange Fluctuation A/c 100...     As such, there was always a hidden profit of Rs. 100 in ur transactions, then y not to show it in P& L now??     Foreign exchange fluctuation a/c should be debited or credited according to requirements and then the balance at the end of the year should be transferred to profit and loss account..

I agree with Dhiraj Sir..

hey harmeet

     according to as12 issued by icai when we bill received than we entry passed (current value in currency ) but we payment than currency amount change than loss or profit on this charge profit and loss a/c

hey guys,
regarding the above discussions i want to ask that at the time of sales we record foriegn amount like dollars or other currency as per rbi reference rates in indian currency.
but while the time of recieving the amount bank provides a rate which is less than rbi reference rate on the date of recieving the amount. so should the difference between amount recieved and bank amount on that date be treated as bank charges?
for ex. 
1-1-14 say rate on date of sales 60
31-1-14 rate on date of reciept 61
31-1-14 rate of bank on which dollars is converted in ruppes is 60.30
so we should record 1 rs difference as foriegn exchange fluctuation and 0.70 paise as bank charges?