Monday, June 25, 2007

#14 Foreign Currency Translation Reserve

In this thread, let's look at the accounting for unrealized exchange differences.

Assuming, XYZ Co. ( a China based company) hold 100 US$ balance on hand ( and assuming foreign exchange rate is: 1 USD= 1.5 RMB)... In XYZ Co. the Cash account balance at this time would be:

US$ denominated cash = RMB 150

One month later, China's currency has appreciated to 1USD= 1.2 RMB, the XYZ Co. have to make the following adjustments:

Dr. Unrealized exchange difference loss 30
Cr. Cash 30


The term unrealized is used in this case is because there wasn't any transactions took place, it's merely a mark-to market exchange rate practice. Hence, we called it unrealized forex losses.

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