Hi all
I have a problem
In Case a company making payment to foreign party at the time of making payment company put an Entry in its books , and Due to some reasons on behalf of company payment not made on same day. However payment made on Next day...
Please tell me.
What will be the treatment of Difference of payment due to foreign currency fluctuation in making payment to Next day……?
@ Tarun, Entry for foreign remittance is made only after confirmation of payment. For making proper entry, You need remittance advice copy issued by bank. Hence no question of foreign exchange loss/gain. Means, entry will be made on the date of payment.
Dear Tarun,
Incase if there is any difference or fluctuation, then primarily it is advisable to reverse or cancel the entry and post it as on date. Hence the differences by the reversal of the entry will automatically get adjusted.
If you find it difficult or there is no alternative of reversing an entry and there is a fluctuation in the exchange rates, then in my opinion instead of accounting it as "loss" charge it as an "expenditure" by passing another similar entry by keeping words in the narration "Additional expenses due to delayed settlement of obligation" or any other similar words as per your requirement.
can entry treated as
exchange loss Dr.
to Bank.......(excess payment due to flactuation)
Why it cannot be treated as loss is, If it would have been paid promptly (in time) then it would be your expenditure and if assume that if instead of paying yesterday you are paying today at today's running price then it is expenditure instead of loss. Hence it is advised to pass another similar entry. Further the amount of loss might not be so material, so you can even if take as loss then there will be no financial effect in the books of account.
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