In this Blog, we will understand what is Foreign Currency Valuation & how to use Foreign Currency Valuation.
Foreign Currency Valuation is a Periodic Activity. To generate Period End reports we need to perform this activity at every month end.
On 01/04/2020, we got a Vendor Invoice for 1000 USD. On the 01st April 2020 the exchange rate was Rs.73.
On the 30th April 2020 at the month end for the period end Reporting, since the exchange rate from USD to INR may get changed (75 in our example), we need to valuate our vendor invoice at the month end rate.
And since, we have still not paid the amount to the vendor, this is booked as Unrealized Gain/ Loss and the postings are reversed on 1st of next month.
Account Determination for Foreign Currency Valuation (OBA1)
In this configuration different GLs are assigned. We have to assigned Realized GL, Unrealized GL, Balance sheet adjustment GL with the Reconciliation GL based on maintained revaluation criteria.
In our example, 4005 GL is created for the Realized Gain & Loss. For Unrealized Gain & Loss 4004 GL is created. For Balance Sheet Adjustment we created 2007
Maintain Exchange rate (OB08)
On the daily basis Currencies rates are fluctuating, that's why we need to maintain Exchange rate. Using transaction code OB08, we can maintain exchange rates on daily basis as shown in the picture.
Foreign Currency Valuation Run
FAGL_FCV is a program which is used for month end postings. This program is executed on the month end & generated postings gets automatically reversed on the 1st day of the next month. Reversal is automatic because after the month end reporting, books of accounts must be match with the entered postings.
Test Run: Test run will show the postings as per selected parameters in Foreign Currency valuation but will not post anything
Simulation Run : Simulation run only required when you are using Simulation Ledger.
Update Run: Update run will post the actual postings based on selected parameters in Foreign Currency valuation.
As shown in the below picture fill all the mandatory fields & execute.
Using Foreign currency Valuation program we can revaluate Vendor Postings, Customer Postings & GL Account postings.
In our example we are valuating vendor postings hence in selection criteria we selected vendor range.
After entering the above parameter, click on Execute. This will post Unrealised gain/Loss.
Click on Postings as shown in the above picture, this will show you the actual Unrealised Gain/Loss based on maintained exchange rate.
As shown in the below picture, the Foreign currecncy valuation postings will get reversed automatically on the 1st day of the next month.
For the Debit & credit balancing, Balance sheet adjustment GL created whose GL code is 2007.
For watch full video on Foreign Currency Valuation for more details.