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Foreign Currency Revaluation Meaning and its process in SAP
Citation preview
Ledger Grp CoCd DocumentNo Document Header Text Typ Pstng Date Crcy LCurr LCur2 LCur3 Text
Itm PK G/L Amount in LC LC2 amount LC3 amount Text
1000 FC Valuation 31.03.2014 USD INR
1 40 40603030 500,000.00 Valuation 0500102715 1 2013
2 50 20503030 500,000.00 Valuation 0500102715 1 2013
1000 Reverse posting 01.04.2014 USD INR
1 50 40603030 500,000.00 Valuation 0500102715 1 2013 Reversal
2 40 20503030 500,000.00 Valuation 0500102715 1 2013 Reversal
Foreign Currency Valuation
A foreign currency valuation is necessary if vendor accounts contains open items in a foreign currency. The amounts of these open items were translated into the local currency at the time they were entered using the exchange rate which was valid on the posting date.
The exchange rate is probably different at the time of closing, and open items need to be valuated again. A program valuates the open items using the new exchange rate and enters the valuation difference in the valuated line items. It also creates the valuation postings:
If a loss Debit: Expense from foreign currency valuation; Credit: Balance sheet adjustment account
If a profit Debit: Balance sheet adjustment account; Credit: Revenue from foreign currency valuation
A valuation cannot be made by posting to the payable account, since reconciliation accounts cannot be directly posted to. For this reason, the amount is posted to an adjustment account, which appears near the reconciliation account on the balance sheet.
Hello
Revaluation is mandatory and a statutory obligation to convert transactions dealt with foreign currencies. Say you do
transactions in USD, you need to project whether you have gained or lost in the transaction and adjust the closing
balances in the local currencies for proper reporting.
Revaluations are executed periodically on a monthly basis, to get accurate monthly balance sheet and also year for
the same reason.
Check this text and assign points if useful
According law, current assets and liabilities in foreign currency have to be revaluated with the exchange rate on the
year-end closing date. The revaluation difference has to be posted to the specific vendor/customer account. The
Foreign Currency Revaluation report (SAPF100) enables you to revaluate open items in foreign currency.
Companies can then use the Post Foreign Currency Revaluation report to post the revaluation differences to the
relevant vendor/customer account and to the currency revaluation profit/loss account.
Features
The Post Foreign Currency Revaluation report posts the revaluation difference in Euros on 31.12.xx, in accordance
with the report selection parameters. The postings are reversed on 01.01.xx so that they do not affect the clearing of
the open items.
Procedure
To calculate and subsequently post foreign currency revaluations in accordance with Italian requirements, proceed as
follows:
1. Call the Foreign Currency Revaluation report (SAPF100) for open customer/vendor invoices posted in a
foreign currency. On the report selection screen, make the required entries and select the Creating Postings
checkbox. Execute the report.
The system updates the BSBW table with the revaluation difference amount.
Subsequently delete the batch input session created by the report to avoid double postings of the revaluation amount.
2. Call the Post Foreign Currency Revaluation report (transaction RVITREVAL), enter the required data, and
execute the report.
The posting parameters are filled automatically with default entries, unless you have changed these entries in
Customizing by defining account settings and posting keys for the respective transaction types.
The system reads the entries in the BSBW table and retrieves the revaluation difference amount, based on the
selection criteria entered. It posts the revaluation difference amount to the relevant vendor/customer account and
makes a reversal entry with a posting date of the current date plus one day (unless you have changed the default
posting parameters).
3. Run the automatic clearing program to close the open items in vendor and customer accounts.
Reg
Please read the SAP help on this topic in the following link; specifically, bullet point 2 in the Prerequisites section.
http://help.sap.com/saphelp_erp60_sp/helpdata/en/13/43c640d8bfb533e10000000a155106/
content.htm
Do not move the balances out of balance sheet adjustment adjustment account to customer/vendor accounts. The
valuation you do for open items is only for unrealized exchange rate difference, so that the numbers your client report
are at the exchange rate on the date of month-end close. The very purpose you reverse the valuation on the first day
of next month is to reset numbers back to where they were. Then in that subsequent month, if an open item gets
cleared, it happens at the exchange rate on the date of clearing (which is called as realized exchange rate
difference).
Here is how it works. Here is the open item (lets say your vendor gives you an invoice in CAD).
1/6/2010 Dr. Expense CAD 1000 (USD 950)
1/6/2010 Cr. Vendor CAD 1000 (USD 950)
The item remains open on 1/31/2010. Here is the entry for FC valuation.
1/31/2010 Dr. Unrealized Exchange Rate Loss CAD 0 (USD 10)
1/31/2010 Cr. Balance Sheet Adjustment A/c. CAD 0 (USD 10)
The above entry is reversed by the FC valuation program with posting date 2/1/2010.
2/1/2010 Dr. Balance Sheet Adjustment A/c. CAD 0 (USD 10)
2/1/2010 Cr. Unrealized Exchange Rate Loss CAD 0 (USD 10)
Lets say you make the payment to your vendor on 2/2/2010 on which date CAD 1000 equals USD 965. Here is how
the entry is posted.
2/2/2010 Dr. Vendor CAD 1000 (USD 950) - note that you are clearing the open item of 1/6/2010, so system takes
numbers for all currencies from the original open item - it does not recalculate exchange rate
2/2/2010 Dr. Realized Exchange Rate Loss CAD 0 (USD 15)
2/2/2010 Cr. Cash/Bank CAD 1000 (USD 965)
Your vendor gives you an invoice for CAD 1000 and he gets a payment of CAD 1000, period. How on earth would
any vendor take a debit for the exchange rate loss you incur due to currency rate fluctuations?