Don’t Enter Foreign Amounts at Par
One problem I see often is that foreign sales, purchases, accounts payable, accounts receivable, and bank and credit card balances are often just labeled with a text field indicating they’re in another currency. But debits and credits indicate that they’re denominated in the home currency. That is a huge problem. If you enter euros as if they’re dollars, or Canadian dollars as if they’re US dollars, your balance sheet and profit & loss never indicate the true state of affairs in your business at any given time. Also, in order to prepare financials, extra time is needed to prepare major calculations and create journal entries in order to account for foreign amounts and exchange on any foreign currency.
Foreign Accounts Receivable and Accounts Payable
With this situation in place, the accounts receivable and accounts payable listing reports also report on everything as if they’re in the home currency, and so the values are skewed. All this is a problem when reporting to shareholders during the year, or when reporting to the board of directors, the bank, or to investors. It’s also a problem if the business is buying or selling something at a particular price in a foreign currency, but the exchange rate fluctuated wildly by the time the payment was made. Depending on the size, this can drastically affect the profitability of any sale or purchase transaction. Losses on transactions may not be discovered until the accountant does some period-end calculations. By then, it’s too late.
The Exchange Rate Matters
Foreign currency and exchange rate swings can mean the difference between black and red ink for a company. If multicurrency is not tracked in real time, a business can go “out of business” because problem areas are not detected and remedied before it is too late. If you’re purchasing components in foreign currency to create your products or services that you sell, the price that you charge for your products and services must be calculated properly to allow for the foreign input costs and to yield a profit. Profitability needs to be tracked on all items in real time, so that prices can be changed when necessary, and perhaps input costs can be renegotiated to allow for the exchange rate variations. Businesses must use QuickBooks correctly, and users need to be taught how to use the multicurrency function properly. Businesses also need coaching on which is the best version of QuickBooks to use in order to track multicurrency for their unique situation properly.