Q1: What happens when I issue an invoice in a foreign currency?
When you create an invoice in a foreign currency (e.g., USD or GBP), Balabook automatically converts it to your company’s base currency using the European Central Bank (ECB) exchange rate on the day of the invoice.
-The invoice shows both the foreign currency amount and the base currency equivalent.
-This base currency amount is used in your books for revenue recognition, tax reporting, and financial statements.
Example:
- Invoice issued for £500
- ECB rate on the day: £1 = €1.156
- Balabook records the invoice as €578 (500 × 1.156)
Q2: What if the payment I receive is at a different exchange rate?
Payments are often converted by the bank at a different rate than the ECB rate used when issuing the invoice. Balabook records the actual amount received, and any difference between the expected and actual amount is treated as a realized gain or loss.
Example:
- Invoice estimated at €578
- Payment received after bank conversion: €570
- Difference: €8 → recorded as a realized loss on foreign exchange
Q3: How does Balabook record realized gains and losses?
- If the payment results in more money than expected, Balabook records a realized gain as revenue.
- If the payment results in less money than expected, Balabook records a realized loss as an expense.
Q4: Why doesn’t Balabook just adjust the invoice?
- Invoices should reflect the agreed sale amount at the time of issue.
- Exchange rate fluctuations are external factors, and adjusting invoices retroactively would distort your revenue and tax reporting.
- By recording realized gains or losses separately, Balabook ensures accurate accounting and financial statements.
Q5: Do I need to enter the bank exchange rate manually?
Yes, when recording a payment in a foreign currency:
- Specify the amount actually received.
- Specify the exchange rate applied by your bank (if different from Balabook’s default).
Balabook automatically calculates and posts any gain or loss to the appropriate account.
Q6: Where do realized FX gains and losses appear?
- Realized gains/losses are posted to a Finance Expenses or Finance Revenue account in your P&L.
- You can track these amounts in your Management Accounts to see the impact of currency fluctuations.
Q7: Does this apply to both invoices and bills?
Yes. Foreign exchange differences are handled for:
- Customer invoices (sales)
- Supplier bills (expenses)
This ensures your accounts always reflect the actual amounts received or paid in your base currency.
