Forex Gain Loss Accounting in Tally

Forex Gain / Loss Accounts

Forex Gain Loss arises when any amount received / paid in foreign currency at different Rate than the original transaction, difference resulting in Gain / Loss (Called Forex Gain Loss)  arises. This amount is to be adjusted through Forex Gain Loss account and respective ledger accounts squared up.

Some instances of Forex Gain Loss

  • Amount received from Customer against Sales Bill at a different Rate of Exchange that at the time of Sale
  • Amount paid to Supplier against Purchase Bill at a different Rate of Exchange that at the  time of Purchase.
  • Amount re-paid to Lender against money borrowed at a different Rate of Exchange that at the  time of Loan taken..
  • Amount received from Borrower against money lent at a different Rate of Exchange that at the  time of Loan given..

Forex Gain / Loss Accounts Adjustment in Tally

Sales / Purchase & Party Ledger account shows figures in Base currency at the Exchange Rates entered in the voucher. Subsequently, at the time of payment, Due to variation in exchange Rate, some Forex Gain / Loss might arise. This is reflected in Party Ledger Account .

When the Bill is settled in Foreign Currency, balance lying in Party Account, due to the difference in Exchange Rate,  is to be adjusted to square off the Party Account and transferred to Forex Gain Loss , through a Journal Voucher .

In Journal Voucher, first entry should be Debit. So :

Journal Voucher for Forex Gain / Loss Adjustment in Tally

Forex Gain/Loss Journal Voucher Class set up in Tally

Instead of Journal Voucher, you may also create a Journal Voucher Class to auto adjust the Forex Gain Loss. Journal Voucher  Class creation has been explained earlier. Here we explain  points related to creation of Forex Journal Voucher Class

At Voucher Type creation of Journal Voucher Type, enter the Journal Voucher Class Name to create a Forex Journal Voucher Class to get Voucher Class set up screen

Journal Voucher class creation

At Voucher Class Set Up screen, enter as follows .

  • Set Yes at Use Class for Forex Gain/Loss adjustments.
  • At Ledger Name, select the Forex Gain Loss Accounts. These ledger accounts will be available in Forex Journal Voucher Entry for adjustment of Forex Gain / Loss.

Journal Voucher class set Up

Forex Adjustment Journal Voucher Entry

Journal Voucher entry using Voucher Class has been explained earlier . Here we explain entry of Journal Voucher Class elated to adjustment of Forex Gain / Loss. At Voucher entry, select the respective Voucher Type

Journal Voucher Type selection for Journal Voucher Class creation in Tally

Now select the Voucher Class

Voucher Class selection for Journal Voucher class entry in Tally

 At Forex JV entry, select the Party Ledger Account. At the Amount field, the foreign gain/loss due to exchange variation is carried (loss is displayed as Credit and profit as Debit, you can change this figure also). Save the journal voucher. The Forex gain/loss is now adjusted.

Having made the Forex Adjustment through Journal Voucher (or Journal Voucher Class), at Ledger  Voucher List (GoT>Display>Account Books>Ledger)  select the Party Ledger Account to see the effect of the Forex Adjustment Journal Voucher.

Party Ledger Display

Ideally the unadjusted profit / loss due to foreign transaction should be transferred to Forex Gain/Loss a/c on the completion of a transaction to square off the account. A sale transaction would be complete when the full receipts have been received. A purchase transaction is treated closed on making full payment.

Even a single JV can be used to adjust the forex gain / loss of several parties. For example, you may create a single forex JV at the month-end (or periodic interval) to adjust the gain or loss of all the Parties.

It is recommended that you create Journal Voucher to adjust Forex Gain Loss instead of Journal Voucher Class. You get more flexibility

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