Rose,
I think you may be confusing three related issues, Conversion, Revaluation and Translation.
Conversion is done at the TRANSACTION level, and takes a non-functional-currency value and converts it to your functional currency. Each multi-currency transaction you enter in Great Plains is converted to the Functional currency. So, if you issue a CAD-denominated invoice in your USD-denominated company, GP will store the original value (called the Originating currency value) and will calculated the USD equivalent. So, in response to your question, yes, every transaction should be converted to the functional value appropriate to the given company.
Revaluation is done at the TRANSACTION level as well, and is only important/necessary if the transaction will be reversed to cash (ie an invoice that will be paid off, a loan that will be collected on, etc.) Again, with the CAD invoice in a USD company; if the invoice is outstanding at the end of the month, GAAP requires that all non-functionally-denominated invoices be revalued to show the current spot rate as at the balance sheet date. The revaluation process in GP supports this, but I've only used it for subledger control accounts; in effect, it changes the functional currency value for each outstanding document.
Translation is done at the COMPANY level, and allows you to consolidate companies which have different functional currencies into ONE "reporting" currency. As an example, if you have 2 companies, one with a functional currency of CAD and another with a USD functional currency, and you wish to report consolidated values in USD, you need to TRANSLATE the CAD company's statements into USD, then add them to the USD company.
So, with that long-winded statement in mind, let's look at your questions:
Income statement: TRANSACTIONS that affect the income statement are converted using the appropriate exchange rate for the posting date of the transaction. GP uses the most-recent exchange rate in your exchange rate table; if you put in a new rate every month, it will choose that rate all month. Unless there is a huge monthly fluctuation, that approach is perfectly acceptable under GAAP. However, since Income Statement values are required to show the historical value of the transaction, they typically may not be revalued under GAAP.
Balance Sheet: As with the income statement, transactions that affect the balance sheet are also converted, using the same exchange rate as the income statement, when they are entered. Unlike the Income statement, however, most balance sheet accounts are intended to be valued at their current rate, not their historical rate. Now, most balance sheet transactions will eventually be reversed into Revenue or Expense - cash will be spent on expenses, deferred revenue will become revenue. If a Balance Sheet item is denominated in a foreign currency (foreign to the entity, that is) it should be revalued at the balance sheet date - if you do one balance sheet per month, that is the date you should get a new rate. However, few companies have significant transactions which are denominated in foreign currencies, with the usual exceptions of AP, AR and Cash. Other possibilities are Intercompany lending, loans sourced in other currencies, or investments in foreign concerns. Of course, once the item is reversed (cash received for invoices, or cash paid for vouchers, loans paid off, etc) then there is no need to revalue the item, because it's value will be zero going forward.
So, you should REVALUE any balance sheet transaction lines which are denominated originally in foreign currencies, until such a time as they have a zero balance. You should NOT REVALUE any Income statement transactions, unless there is a very specific reason to do so (which I've not yet come across). Your auditor would likely be able to let you know if that should be an issue.
I hope I got a bit closer on this. Sorry again for the long-winded nature. If you're interested, the related US GAAP discussion is FASB 52, which replaced FASB 8. Please let me know if I missed on anything.
