Question re: Year End and Exchange Rate Difference function

[Former Member]

Hi Experts,

My client is running his Year End and is about to run the Exchange Rate Difference function.

In the SAP Tips for Year End Closing guide for release 6.5, 2004, 2005 and 2005 SP01, page 30 states:

We recommend that you create an automatic reverse posting on the first day of the 
subsequent period. 

Let us say the customer is revaluing a foreign bank account - we are running the Exchange Rate Difference function to revalue the account, not revalue it and then immediately return the account to its previous balances after Year End.

Is there any reason we need to reverse the revaluation of an FC bank account immediately after Year End?

Thanks

Greig

[K_Pauquet]

Hi Greig,

at year end you want to report on all monies due to & to be paid by you at that particular date in all currencies. The authorities in your country are only interested in the values of these foreign currencies in the local currency, therefore you take a snapshot of all foreign monies due at that particular date at the rate of the day.

For example, considering you are in Ireland & need to report at YEC in Euros, a US customer owes you at that time $100.00 from an invoice that was posted on 10.12.2008. At that time the invoice was worth u20AC80.00 to you. The FX rate is now different on 31.12.2008 & $ 100 are only worth u20AC75.00. Therefore, at YEC you have a potential prospective revenue loss of u20AC5.00. You want to include this in your balance sheet & thus post an FX differences journal to account for these u20AC5.00 (unrealised FX differences). Now this u20AC5.00 is merely advisory in that you cannot be sure that you are, in effect, losing revenue on this transaction. When the customer pays the rate might be different & only then can you post realized FX differences.

Therefore, once you produced your balance sheet, you want to reverse this advisory FX difference posting & wait for the real FX difference.

All the best,

Kerstin

[Former Member]

Kerstin,

Thank you very much for your detailed answer. I understand what you are saying - that the Foreign Exchange difference needs to reversed when dealing with revaluing Business Partners balances, as the exchange loss/gain is actually only realised on posting the payment.

But with regards to revaluing GL Bank Accounts - I think reversing the journal is not applicable as bank balance is relatively static and will never be realised (unless the bank account is closed).

Do you agree with my last statement? I realise this is accounting question and is ultimately at the discretion of the client's accountant.

Thanks

Greig