Foreign Currency Invoice Payments to Different Currency Banks

Article ID: 2025164        Last updated: 10 October 2014

 

Note! In the following support note, we will assume that the local currency is GBP.

  • The example provided deals with the receipt of a customer payment; the same principals are also true for payments to suppliers.
  • When dealing with payments to suppliers, simply use the Pay Suppliers and Spend Money windows in place of the Receive Payment and Receive Money examples.

AccountEdge's multi-currency feature allows you to raise sales and purchase invoices in foreign currencies. This will usually result in the payment being made or received into a local currency bank account, or that of the invoice.

For example you might raise USD invoice to a customer and receive the payment into a GBP or USD bank account. No problem.

However, AccountEdge will not allow you to record a foreign currency invoice and receive or pay that invoice from a different foreign currency bank account.

For example, you would not be able to directly receive or pay a USD invoice from a Euro bank account, since they are both foreign currency accounts.

So, how do we handle this?

Pay / Receive Payment into a local currency 'contra' bank account

We can use a local currency 'contra' bank to temporarily facilitate the receipt or payment. The contra bank account will temporaily hold the payment or receipt in the local currency before you place that money into/out of its ultimate resting place of the foreign bank account.

  • In the example below, we will receive €350 into a Euro Bank Account for a US$400 sales invoice.

 

1.  In the Accounts menu and select Chart of Accounts, and setup (if needed) a new GBP bank account called something like 'GBP Contra Bank' or similar.

Ensure that the account is set as a Detail Account and that the Account Type is set to Bank.

 

2.  Go to Sales> Receive Payments and select to receive the US$400 payment into the GBP Contra Bank.

Set the exchange rate to the exchange rate between GBP and the invoice's currency.

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Once recorded, the balance of the USD invoice has been reduced by the dollars received.

However, we now have £260.99 residing in the GBP Contra Bank account, based on the exchange rate we happened to use for this receipt.

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This money needs to be transfered to its final resting place, our Euro Current Account.

 

3.  Go to the Banking> Receive Money window. Click the Currency button and select the Euro currency.

Set the exchange rate to that which will transfer €350 into the Euro bank for the £260.99 local contra amount.

  • Tip!  Use Help> Currency Calculator at the top of your screen to calculate the rate, if needed.

Set the Deposit to Account to the Euro Current Account and receive the €350. Allocate the receipt from the GBP Contra Bank.

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Once recorded, the Euro Current Account will contain the €350, whilst the GBP Contra Account will be reduced to a zero balance.

 

 

Disclaimer:  This information is of a generic nature. For specific advice regarding your particular circumstances please seek assistance from your Accountant, HM Revenue & Customs or your IT Consultant as appropriate.