Foreign Currency Gains and Losses in Microsoft Business Central – Part 1

Introduction

In Microsoft Business Central, businesses that work with different currencies must manage foreign currency gains and losses. Changes in exchange rates between when a transaction happens and when it is settled or reported cause these gains or losses.
In this blog, I will show you how to create a sales invoice and payment receipt using foreign currency. This will explain how Microsoft Dynamics 365 Business Central converts foreign currency to local currency and tracks realized or unrealized gains and losses. I will also show how to run the Adjust Exchange Rate batch job in Microsoft Dynamics 365 Business Central.

Understanding Foreign Currency and Setup

Foreign currency transactions involve buying, selling, or holding assets and liabilities in currencies other than the company’s main currency. When these transactions are settled or revalued at the end of a period, changes in exchange rates can lead to a gain or loss. This difference must be correctly shown in the financial statements for accurate reporting and compliance.

Business Central calculates foreign currency gains and losses based on changes in the exchange rate between the posting date of a sales or purchase invoice and the date of a payment or related entry.

Setting up Foreign Currency with Realized and Unrealized Gains and Losses Account

If you do any of the following, you need to set up a code for each currency you use:

– Buy or sell in currencies other than your local currency (LCY)

– Record general ledger transactions in both LCY and an additional reporting currency (if require).

You can also search for ‘Currencies’ in the search toolbar.

You can set the corresponding posting G/L Account No. for Realized and Unrealized Gains and Losses entries by editing the Currency Card.

Define Exchange Rate

Exchange rates are used to calculate the local currency value (LCY) of each currency transaction. In this example, I will use USD as the foreign currency (FCY) with the sample setup shown in the Currency Exchange Rates table.

On the first line of the above table, it indicates that on or after 01.06.2024, USD amount transactions will be converted to LCY using the relationship of 1 USD = 80 INR. This is effective until there is another entry with the latest starting date (i.e., 15.06.2024 where 1 USD = 81 INR and so on).

Transactions

Creation of Sales Invoice using USD Currency

Amount: USD $5,000

Posting Date: 01.06.2024

Exchange Rate: 1 USD = 80 INR

The invoice below does not include GST or discounts to make it easier to review. I have also checked that the correct currency code is selected in the Invoice Details section of the sales invoice.

By clicking the assist button next to the currency code, you can see the exchange rate used to convert the transaction to local currency (LCY).

Note:

If the Fix Exchange Rate Amount field in the Currency Exchange Rates Table is set to “Currency” or “Relational Currency,” you can change the Exchange Rate or the Relational Exchange Rate Amount on this page. If you don’t want these to be changed during a transaction, set the value to “Both.”

On the Sales Invoice Statistics, you will see that this has already converted to the Local Currency correctly using the exchange rate defined on the setup.

Reviewing General Ledger Entries of Posted Sales Invoice

Also take note of the FCY and LCY amounts posted in Amount and Amount (LCY) fields of Customer Ledger Entry.

Creation of Bank Receipt Entry using USD Currency

Amount: USD $5,000

Posting Date: 15.06.2024

Exchange Rate: 1 USD = 81 INR

Reviewing General Ledger Entries of Posted Bank Receipt

Apply Posted Bank Receipt Entry against Posted Sales Invoice

Rever below mentioned screenshot of Customer Leder Entries which was of before applying posted bank receipt payment entry, in both the lines amount LCY is different because of the difference of exchange rate.

Now, we will apply Payment entry to Posted Sales Invoice, which was posted on 01.06.2024. Once applied the Amount (LCY) is updated accordingly and balance amount is transferred to realized gain / loss account.

Reviewing General Ledger Entries of Posted Bank Receipt – After Application

In the above-mentioned screenshot, system has posted Realized Gain Account Entry of the difference amount and adjusted the same in Detailed Customer Ledger Entries to show the exact amount in Amount (LCY).

Conclusion

Managing foreign currency transactions in Microsoft Dynamics 365 Business Central is essential for businesses dealing with multiple currencies. By setting up the correct exchange rates and tracking realized and unrealized gains or losses, companies can ensure accurate financial reporting. I will be demonstrating how to execute Adjust Exchange Rates Batch Job in Part 2.

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