How To Record Foreign Exchange Transactions

Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.

The starting point to recording foreign exchange transactions is choosing an accounting policy. Most policies look something like this:

Foreign Currency Accounting Policy

The company translates monetary assets and liabilities (any item paid for or settled in cash) into the Canadian dollar at exchange rates prevailing on the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Exchange gains and losses from the translation of monetary items are included in net income for the year. Revenues and expenses are translated at the spot rate on the date the transaction occurred.