EEFC accounting entries

For Sales Transaction

As per AS 9 on Revenue recognition, you should record the sale transaction in your books as soon as the delivery (with risk & rewards) passes to the customer & there is reasonable assurance regarding consideration receivable.

As per AS 11, a foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

So you should pass the sale entry on the date of transaction itself.

Now regarding receipt of Amount: -

As soon as you receive the amount to your EEFC Account, you should pass the receipt entry of entire amount by debiting half amount to Cash credit A/c & half amount to Balance in EEFC A/c (can be grouped under Current Assets) & crediting entire amount to Customer’s account at the exchange rate applicable on the date of receipt. Any difference due to change in exchange rate on the date of sales transaction & date of receipt should be debited or credited to P & L Account as Foreign Currency Exchange Gain/Loss account.

Again at the time of withdrawal of remaining amount from your EEFC Account, you should debit the Cash Credit A/c & credit the Balance in EEFC A/c. The exchange rate for this transaction will be the rate on the date of withdrawal of remaining amount from your EEFC A/c & Any difference due to change in exchange rate on the date of sales transaction & date of receipt should be debited or credited to P & L Account as Foreign Currency Exchange Gain/Loss account.

Hi Harshal.

I think in the last para, for Forex gain or loss under EEFC account you wanted to mention the exchange differece will be differece in rate on the date of receipt and date of withdrawal. Can you please confirm. And just to set the air clean, here this gain that we are discussing about is realized gain. Unrealized will be recognized on the basis of closing balance only.

Thanks

Ankit