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frenchery's avatar
frenchery
User
14 days ago
Solved

Bank account reconciliation with two different currencies

Hello,

I am the owner of a small business using a Business Lite subscription.

As part of my business operations, I need to purchase items in a foreign currency EURO.

I created in MYOB a separate bank account in AUD to manage and record those transactions in foreign currencies. This account in MYOB is not linked to my external EURO bank account (MYOB business does not manage multi-currencies).

Due to the small size of my business and the small volume of transactions in foreign currencies, I would like to stick to my Business Lite subscription for the time being.

 

The way I have been managing and recording those transactions in foreign currency EUR has not been ideal and it has created a complexity in reconciliating that bank account in MYOB.

 

Below the details of my initial process:

  • transfer AUD to a multi-currency account on an external platform
  • convert this AUD amount into the desired foreign currency EURO at a given exchange rate on the day
  • make purchase in that foreign currency at various time intervals

The issue I have faced is that the exchange rate used at the time of the transfer is different that the exchange rate at the time of each purchase.

After recording those purchases into MYOB as a "spend money" item, I am not able to reconcile that account due to the currency fluctuations.

 

After facing this issue, I have since changed my approach and I do not convert ahead the money from AUD to EUR but only the specific amount at the time of purchase. This allows me to have now a perfect conversion match when I record each foreign currencies transaction in MYOB.

 

However, I still have to clear the mis-alignment from my earlier process.

 

What would be the best practice in MYOB Business product to record a realised currency gain or loss ? Ideally I would only record one operation to cover the full financial year if possible and reconcile that bank account.

 

Thank you in advance for your feedback.

  • Mike_James's avatar
    Mike_James
    3 days ago

    Hi frenchery , if your MYOB bank account has a positive value at end of year, then you should record a spend money at that date. This will reduce that balance to zero. Allocating that spend to a currency variance account will show that reduction as a loss, which is a realised loss, ie actual and permanent.

    The currency variance account is usually set up in your income or cost of sales section, definitely not adjacent to your bank.

    The unrealised losses figure will have been calculated by comparing the value in AUD of any foreign currency assets/liabilities, using exchange rates at that date, with the MYOB book value at the same date. 

    Reconciling your EUR account in MYOB is tricky because in MYOB it is only in AUD. You may need to keep a separate analysis so that you can see a running balance in both currencies.

     

5 Replies

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  • Genreve_S's avatar
    Genreve_S
    MYOB Moderator
    9 days ago

    Hi frenchery

     

    I understand you need to work with multicurrency. It sounds like your current process is the best way to handle overseas transactions without multicurrency. However, I recommend seeking advice from an accountant or bookkeeper to optimize your process.

     

    Feel free to create a new thread if you need any other help.

     

    Thanks,
    Genreve

    • frenchery's avatar
      frenchery
      User
      3 days ago

      Thank you for providing feedback Genreve.

      The current process is working now but I still need to clear the unbalance created by the currency fluctuation overtime. 

      I have not been able to get help from my current accountant and will be looking for a alternative soon.

  • Mike_James's avatar
    Mike_James
    Ultimate Partner
    9 days ago

    Hi frenchery , my suggestion, hoping I understand your issue correctly.

     

    At year end, from what you have written, it sounds like you will have a balance in AUD remaining on the bank account (EURO expressed in AUD), but no amount remaining in the actual EURO bank account at the same date. In that case you can record a spend money (to clear a loss) or receive money (to clear a gain), to clear out the remaining AUD amount, and allocate it to an account called "currency variance" in the profit report, either under income or cost of sales. 

     

    If for example you did have a EURO balance remaining, then you would need to calculate its equivalent in AUD at that date, using bank rates, and the spend/receive money amount would be for the difference between that AUD equivalent and what is in MYOB.

    • frenchery's avatar
      frenchery
      User
      3 days ago

      Hi Mike,


      Thank you for taking the time to provide some valuable feedback.

      Apologies if my questions below seems a bit trivial but my accounting knowledge is quite basic. I am writing on this forum because I am not able to get help from my accountant on this matter. 

       

      Your initial statement is correct:
      - My actual EUR account has a balance of 0 EUR today

      - My MYOB EUR account (EUR expressed in AUD) has a positive balance today

       

      If I understand correctly, you suggest I record a "receive money" to clear my gain (in my specific case today). I shall assign that amount to a different chart of account called "currency variance".

      • I do not have such account, shall I create it under the parent header "Bank account" where my EUR bank account sits ?
      • If I assign this amount to that new account, how can I then reconcile my EUR bank account ?
      • In last year annual tax return, I can see a line called "Unrealised losses on revaluation of assets to fair value" corresponding to "Foreign currency losses". I do not know how this number has been calculated.

       

      Thanks in advance for your time and guidance on this matter.

      • Mike_James's avatar
        Mike_James
        Ultimate Partner
        3 days ago

        Hi frenchery , if your MYOB bank account has a positive value at end of year, then you should record a spend money at that date. This will reduce that balance to zero. Allocating that spend to a currency variance account will show that reduction as a loss, which is a realised loss, ie actual and permanent.

        The currency variance account is usually set up in your income or cost of sales section, definitely not adjacent to your bank.

        The unrealised losses figure will have been calculated by comparing the value in AUD of any foreign currency assets/liabilities, using exchange rates at that date, with the MYOB book value at the same date. 

        Reconciling your EUR account in MYOB is tricky because in MYOB it is only in AUD. You may need to keep a separate analysis so that you can see a running balance in both currencies.