Accounting Accruals on Goods reception?

Question

I have my doubt on this issue & is away from my accounting theory books. Here's the thing, Supposed that you have raised a purchase order for an item that is your merchandise inventory to your supplier. At month end, the situation is such that you have actually received the goods BUT the invoice hasn't been received. Because of that reasons, you then accrue the fact that you have increased your inventory & at the same time incurred a commitment to pay. YET, your books is actually in USD and your purchase order is in EUR and the exchange rate is very volatile. Let says that when you accrue for the inventory & the commitment the rate was $1 = 0.8EUR and at month end the rate was $1=0.7EUR (substantial). Since the inventory & payable have been capitalized at a different rate but the payable hasn't been paid, both a/cs should be revalued.... am I Correct and exchange gain/loss for the payable is finalized when the invoice is received & paid and for the inventory when it's sold.

2008-03-12T04:41:03Z

Thanks for the answer, questions are:
1. Should I revalue & restate the inventory &/ payables knowing that exchange rate have change at month end compared to the day I recognzed the inventory &/ payables?

Sandy · Accepted Answer

Since this is a problem with exchange rates, whether or not you rec'd the invoice is irrelevant as it's unlikely that the exchange rate will be stated in the invoice. From the PO, you shd know the price, so based on the prevailing exchange rate on the day the goods are rec'd, book in your double entry.

When you pay, there will be a difference which you will just take to exchange gain or loss in the income statement. If your tax authority draws a distinction between realised and unrealised gains and losses, this will be a realised exchange difference of a revenue nature (as opposed to a capital nature)

Accounting Accruals on Goods reception?

Related Questions

Trending Questions