Tutorial on multiple currency accounting
Author: Peter Selinger <selinger at users dot sourceforge dot net>
Written: Jun 4, 2005
Updated: Oct 20–26, 2008 (added section on realized and unrealized gains)
Updated: Nov 15, 2010 (changed sectioning)
Updated: Jan 2, 2011 (added Australia info to Section 5.3)
Updated: Jun 2, 2015 (fixed typo in Table 5.2, reported by Alex Chiang)
Updated: Aug 14, 2015 (fixed typo in Table 3.2, reported by Francisco Milan Campos)
Contents
0. Introduction
1. A brief review of double-entry accounting
1.1. Single-entry accounting
1.2. Net worth and equity
1.3. Double entry accounting
1.4. Income and Expenses
1.5. The Fundamental Accounting Equation
2. Foreign currency accounting issues
2.1. Single-entry foreign currency accounting
2.2. Double entry foreign currency accounting, the wrong way
2.3. Foreign exchange gains and losses
2.4. Calculating gains and losses through adjustments
3. Foreign currency accounting according to SSAP 20
3.1. Accounting for non-monetary current assets
3.2. The "official" solution: translation to a single currency
4. Foreign currency accounting using currency trading accounts
4.1. Restoring symmetry to foreign currency accounting
4.2. Accounting with currency trading accounts
4.3. Equivalence with SSAP 20
4.4. Example: tracking exchange gains and losses by source
5. Realized and unrealized gains and losses
5.1. An example from real estate
5.2. Importance of the "identity" of assets
5.3. The FIFO, LIFO, and adjusted cost base methods
6. Translation issues
6.1. Independence of viewpoint
6.2. Reference currency vs. Equity currency
7. Specific software
7.1. GnuCash
0. Introduction
Accounting with multiple currencies can be tricky. It is easy enough to use an exchange rate to translate
between different currencies. But things get less obvious when one takes into account how exchange rates
fluctuate over time. Multi-currency transactions can incur foreign exchange gains or losses. How does one
account for these, while respecting the Fundamental Accounting Equation? Do different accounting methods