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
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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.
Monday, June 25, 2007
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