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faq:multi_currency_currency_forward_process

How to do Currency Forwards in System Five

Currency forwards are also called foreign currency forward contracts. They are basically an agreement that obligates its parties to exchange given quantities of currencies at a specified exchange rate in the future. The rate is normally assigned at the time the contract is agreed to, and usually requires a deposit to be given.

I am going to go through an example process. The date the deposit and contract are initiated will be Jan 1st. The Agreement is to purchase $200,000 on Feb 1st. The advance to the supplier will happen on or after Feb 1st.

Process Description

  • This process uses advances
  • There are 2 suppliers: currency forward supplier, and inventory supplier.
  • The local currency is CAD
  • The foreign currency is USD
  1. Create an advance for 5% on Jan 1st. This advance is $10,000 CAD or 5%. The date and currency data are both Jan 1st.
  2. Create a bill for 100% of the forward on Feb 1st. The Bill is for $200,0000 USD with a date of Feb 1st and a currency date of Jan 1st. The account this is posted to can be a custom currency forward account that is set up to be a bank in system five. Note: this currency forward account should have a selected currency of USD.
  3. System Five will ask you if you want to apply the advance as you create the $200,000 USD bill. Please apply the advance.
  4. If you need to add this after the fact, please manually add the GL code for advances to the bill, and put the amount on the invoice at a negative amount. In this case -$10,000 USD. The currency date of this line should be Jan 1st.
  5. Now you pay off the bill on Feb 1st for the remaining balance of $190,000 USD or 95%. The Date of the Cheque is Feb 1st, the currency date of the line on the cheque is Jan 1st.
  6. The currency forward supplier now has a balance of $0 and all exchange gain/loss entries are correct.
  7. Create a $200,000 USD or 100% advance for the inventory supplier. Advance date is Feb 1st and currency date is Jan 1st.
  8. Please select the USD currency forward account you previously created when creating the advance.
  9. When you create the bill and apply the advance make sure that you set the currency date of the advance line to be Jan 1st.
  • As always your purchase order and bill have to have the same dates for inventory reconciliation. To accomplish this make sure each receiving has a corresponding line on the the bill for the same amount and date. Use the currency date functionality to make this easier.
faq/multi_currency_currency_forward_process.txt · Last modified: 2008/03/03 10:48 (16 years ago) by cliff