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Managing foreign bank accounts

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Note: The method described for managing foreign assets will work equally well for managing foreign bank accounts, but will not enable easy reconciliation.

For foreign bank accounts,  entering amounts in foreign currency and running a parallel ‘Exchange Value’ account may enable easier reconciliation.

  • Create a bank account in which you will record the foreign currency amount
  • Create another bank account styled ‘Exchange Account <bank account name>

Record each transaction in the local currency and record corresponding the currency exchange amount in the Exchange account. The total of the values in the two accounts should be the correct AUD value.

For example:

Note that although Mclowd will not display the Total in AUD anywhere, the amounts in the foreign account added to the amount in the exchange account will always correspond with the AUD value on the date of the transaction.

Prior to running any end of period report, you would enter a journal adjustment or revaluation to compensate for currency fluctuations during the period.

To do this, you would first verify the balance of the account and its matching exchange account. (In the above example, the total is $1422.73)

Next, you would verify the exchange rate at the date on which you wish to run your end of period report. Let’s assume, for this example, that the rate is $1.45.

Multiply the US total ($1015) x 1.45. The current AUD value of your USD investment is $1471.75.

Enter a correcting journal with the description “FC Exchange Adjustment Account NNN/Asset XXX).

In the example above, the total displayed is $49.02 less than the converted account balance, because the USD exchange rate has increased. The following journal entry would correct the balance.

If the currency value had fallen, reducing the AUD value of your investment, you would enter:

Using this approach will result in two assets or accounts for each single investment or bank account displayed in your reports, but will ensure each transaction reconciles correctly and the total reflects the correct Australian dollar value of your investment and records currency gains and losses correctly.