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Vendor Payment Transaction in Foreign Currency

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Posted on by David_B

In Dynamics 365 Finance and Operations (UK), the tenant account LCY is Pound Sterling

A vendor's currency code is USD

A purchase invoice has been created in USD (from this vendor).

A payment has been sent to this vendor from the EUR bank account.

Let's say the PI amount is $6000 USD and the payment amount is €5200 EUR

What is the best way to record this? Would this do:

In General Journal create two journals with same Document Number as follows:
Vendor - $6000 - Bal Account is suspense
Suspense - €5200 - Bal Account is Bank EUR account
Make the LCY amount in two above lines the same

Any other best practice or correct way to do this would be much appreciated.

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Financial Management

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ikoletic 2,202 on at

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Hi David_B

You don't have to worry much about cross currency applications of payments to invoices.

Transactions in Financials are tracked in original currency as well as in local currency.

Feel free to apply payment in different currency to purchase invoice.

It's a simple as setting Currency code with foreign currency amount in journal you're using for posting payments.

Here is the screenshot of vendor ledger after application of 2 payments (one in EUR @ 5200 € and one in GDP @ 534,79) to purchase invoice in USD.

Looking at remaining amount on invoice vendor ledger entry, you can see amounts tracked in original invoice currency and local currency.

Of course, you need to make sure that you keep your currency exchange rates for currencies you're working with up to date. (Search for Currencies and then click on Exch. Rates to set exchange rate for selected currency)

On Currencies window you'll find Adjust Exchange Rates batch that you can run as per your convenience. Usually accountants run in on monthly basis to account for more realistic representation of open amounts in foreign currencies in local currency. This batch will make sure to account for unrealized gains and losses that result from open amounts in foreign currencies. Then, when you apply payments to those open amounts, Financials automatically calculates realized gains and losses from exchange rates fluctuations at the moment of payment.

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David_B 95 on at

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Hi Ivan

Thanks. But the problem is that when I do as you suggest and try to pay a USD vendor from EUR bank, recalling that our system LCY is GBP, it calculates the exchange rates based on rates entered into Currencies - Exch Rates (which we enter once a month from HMRC).

But the bank does not use those exchange rates and uses its own commercial rates. And so there is a difference between the rates actually used and the rates in our system which need to be what HMRC publish.

So I need a way to say this is how much EUR I paid and this is how much USD was sent and then I need for both those figures to equal the LCY for the invoice that is based on Currencies - Exch Rates

I tried to do this, based on your suggestion, with just one entry in General Journal (Vendor on left side, EUR Bank on right side) but it almost always comes out wrong with a certain overpayment left in the vendor account. I can write that overpayment off somehow. But alternatively, the way I described above allows me to precisely control the EUR / USD / GBP amounts so it comes out right.

I am just wondering if 1) I understood your method correctly and if I am missing something that causes the discrepancy I described above and 2) if there is any disadvantage to the method I described other than the extra journal line?

Regards

David

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ikoletic 2,202 on at

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Hi David_B

The thing you can do is also enter transaction specific exchange rate by clicking on caret ">" in Currency Code field.

This will open a dialog where you can enter exchange rate specific for this transaction.

It will default to exchange rate you set for this currency, but you can change it manually here.

Depending on what exactly you're reporting to HMRC, for example, if it's about customer or vendor open balances, you can run exchange rates adjustment at the end of the period with HMRC published exchange rate and have foreign currency amounts converted to local currency per HMRC's published exchange rate.

You correctly understood the method and I don't feel your proposed method has disadvantages, except requiring more work.

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David_B 95 on at

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Thank you very much Ivan. Yes that works to adjust exchange for that one line. But since we had not adjusted exchange rate for original purchase invoice, I found it more precise to use the method I outlined above this time. But your suggestions are well taken and less work and I will use it in future.

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