Geekzone: technology news, blogs, forums
Guest
Welcome Guest.
You haven't logged in yet. If you don't have an account you can register now.




391 posts

Ultimate Geek


# 80774 4-Apr-2011 14:52
Send private message

Any accountants or wannabe accountants or financial gurus on geekzone?

Being self employed as a sofware developer (as a NZ Ltd Company) I've been doing my own accounts so far, been perfectly fine, but recently started invoiving an Aussie company in AUD for development services I perform for them.

Not 100% sure on the ways of accounting for foreign currency.
The main question is how do I calculate gains/losses on foreign currency (for the income statement).

Take this simple example:

1. On 1 Jan 2011 I invoice Aussie Co $100 AUD, rate = 1.2, = $120 NZD (recorded as income).

2. On 31 Jan 2011 Assue Co pay $100 AUD (bank takes $10 AUD as TT fee) into my foreign currency bank account (in NZ).
On this date, rate has increased to 1.25
So I record a $10 AUD bank fee under expenses at 1.25, = $12.50 NZD
And I record a $100 AUD payment from customer at 1.25, = $125.00 NZD
Foreign Currency Bank Balance: $90.00 AUD

Now at this point what do I record as a foreign currency gain? $5 NZD?

3. On 15 Feb 2011 I transfer the $90 AUD from the foreign currency bank account, into my $NZD standard business account, and rate has increased again to 1.30
So $90 AUD = $117 NZD.

At this point what do I do? Originally the $90 AUD was worth $112.50 NZD on 31 Jan (rate 1.25).
And now its worth $4.50 NZD more.
Does this go into realised foreign currency gain?


At this stage I am trying to stay away from using systems such as Zero and MYOB, because everything has worked so far, and I have built my own PHP + MySQL simple accounting system which generates my invoices, etc.

Any tips? (other than moving to Xero, or going to an accountant - which I have to do if I can't figure this out)

Create new topic
15390 posts

Uber Geek

Trusted
Subscriber

  # 455128 4-Apr-2011 14:56
Send private message

Well my tip was going to be "just use xero", which handles foreign currency for you, but I guess instead you'll have to pay a professional to give you an answer to your question(s). I don't think you should trust advice you get online.

You can always call the IRD and ask them.

780 posts

Ultimate Geek
Inactive user


  # 455139 4-Apr-2011 15:52
Send private message

Why are you recording the invoice as income on 1 Jan?

In my case, I just record income when I receive it, not when I invoice it (payments basis). This pretty much solves the problem of changes in the exchange rate.

As long as what you report matches what you actually received, then it doesn't really matter what convoluted calculations you may like go through.

In your case, I would record Income (via fx Gain) of NZ5.00 on 31 Jan 2011.

For point 3, I asked IRD a similar question some years ago. You have actually experienced a capital gain since you reported the income. There is no capital gains tax in NZ so you profit!

Just like people with foreign bank accounts don't have to report an increase/decrease in value due to exchange rate fluctuations. But, you do have to report the interest income at whatever the fx rate happens to be at the time.


PS, I am not an expert just relaying what was told to me - if you find out any different  ,let us know, and I can report a huge expense loss in the loss in value of my foreign account!!! And, that would be a very nice tax deduction if I could make it, unfortunately IRD said I couldn't :(


 

 
 
 
 


15390 posts

Uber Geek

Trusted
Subscriber

  # 455147 4-Apr-2011 16:15
Send private message

I keep money in a foreign currency account that Xero monitors. Every month I see foreign currency loss or gains in Xero, and it goes against my monthly income as a profit or loss.

Personally I figured it should probably only be accounted for once it's used or moved to NZD, but what do I know - nothing much about accounting, which is why I use Xero :)

4438 posts

Uber Geek

Trusted
Subscriber

  # 455217 4-Apr-2011 18:31
Send private message

It's normal for companies transacting in foreign currency to have an account on their P&L called something along the lines of "gains/losses on foreign currency". So, whenever you perform an action which results in an increase in the NZD value of your foreign currency then you would:

Dr The Appropriate Balance Sheet Account (e.g. Bank Account or Accounts Receivable)
   Cr Gain/Loss on Foreign Currency

For a decrease in the NZD value of your foreign currency then just do the opposite of the above.

It would be a good idea to put procedures in place to ensure that you have supporting documentation for any FX revaluations that you may perform. You should also seek professional advice on the tax implications of any FX revaluations - I suspect that they are non tax deductable but this is outside of my expertise.




391 posts

Ultimate Geek


  # 455508 5-Apr-2011 13:03
Send private message

Thanks for the replies guys.

After doing some more reading and research I think I have it sussed.

I had to have gains/losses on both accounts receivable (invoices), and on the bank account.
And each would have realised and unrealised.

So in my original example, I would have:

- Accounts receivable realised gain: $5.00 (for the 1 Jan invoice being paid on 31 Jan)

- Bank account unrealised gain: $4.50
(the $90 AUD received on 31 jan was worth $112.50, and on 15 feb it waas worth $117)

My P&L statement would then have this listed under expenses (as a negative number cause it was a gain):
Foreign Currency Gains/Losses: -$9.50


Create new topic



Twitter and LinkedIn »



Follow us to receive Twitter updates when new discussions are posted in our forums:



Follow us to receive Twitter updates when news items and blogs are posted in our frontpage:



Follow us to receive Twitter updates when tech item prices are listed in our price comparison site:





News »

Samsung Galaxy Fold now available in New Zealand
Posted 6-Dec-2019 00:01


NZ company oDocs awarded US$ 100,000 Dubai World Expo grant
Posted 5-Dec-2019 16:00


New Zealand Rugby Selects AWS-Powered Analytics for Deeper Game Insights
Posted 5-Dec-2019 11:33


IMAGR and Farro bring checkout-less supermarket shopping to New Zealand
Posted 5-Dec-2019 09:07


Wellington Airport becomes first 5G connected airport in the country
Posted 3-Dec-2019 08:42


MetService secures Al Jazeera as a new weather client
Posted 28-Nov-2019 09:40


NZ a top 10 connected nation with stage one of ultra-fast broadband roll-out completed
Posted 24-Nov-2019 14:15


Microsoft Translator understands te reo Māori
Posted 22-Nov-2019 08:46


Chorus to launch Hyperfibre service
Posted 18-Nov-2019 15:00


Microsoft launches first Experience Center worldwide for Asia Pacific in Singapore
Posted 13-Nov-2019 13:08


Disney+ comes to LG Smart TVs
Posted 13-Nov-2019 12:55


Spark launches new wireless broadband "Unplan Metro"
Posted 11-Nov-2019 08:19


Malwarebytes overhauls flagship product with new UI, faster engine and lighter footprint
Posted 6-Nov-2019 11:48


CarbonClick launches into Digital Marketplaces
Posted 6-Nov-2019 11:42


Kordia offers Microsoft Azure Peering Service
Posted 6-Nov-2019 11:41



Geekzone Live »

Try automatic live updates from Geekzone directly in your browser, without refreshing the page, with Geekzone Live now.


Support Geekzone »

Our community of supporters help make Geekzone possible. Click the button below to join them.

Support Geezone on PressPatron



Are you subscribed to our RSS feed? You can download the latest headlines and summaries from our stories directly to your computer or smartphone by using a feed reader.

Alternatively, you can receive a daily email with Geekzone updates.