Euros/Sterling - year end process?

[psychocandy]

Currently invoice in euros. Sterling equivalent rate is put on invoices so this is what I pay VAT on.

Also, my accountant uses this Sterling rate to calculate the approx profit/loss each month.

However, in reality, what I transfer into my Sterling business account (from Euro account) is going to different to that invoiced (because of exchange rate differences). In the past I have moved the euros every month into sterling account but recently Ive kept it in euros a bit longer (in the misguided hope that the exchange rate will get better!) and am now using CurrencyFair where I transfer euros into this and sterling pops out the other side.

My accountant tells me exchange rates differences etc are all reconciled at year end but can someone explain? I can understand its easy enough to determine difference between invoiced amount and actual receipt if the transfer is done after every payment, but surely it gets more complicated if sterling is arriving at irregular intervals making it impossible to tie up with actual invoice?

Or is the year end based on cash recieved into sterling rather than invoices paid?

[ASB]

Currently invoice in euros. Sterling equivalent rate is put on invoices so this is what I pay VAT on.

Also, my accountant uses this Sterling rate to calculate the approx profit/loss each month.

However, in reality, what I transfer into my Sterling business account (from Euro account) is going to different to that invoiced (because of exchange rate differences). In the past I have moved the euros every month into sterling account but recently Ive kept it in euros a bit longer (in the misguided hope that the exchange rate will get better!) and am now using CurrencyFair where I transfer euros into this and sterling pops out the other side.

My accountant tells me exchange rates differences etc are all reconciled at year end but can someone explain? I can understand its easy enough to determine difference between invoiced amount and actual receipt if the transfer is done after every payment, but surely it gets more complicated if sterling is arriving at irregular intervals making it impossible to tie up with actual invoice?

Or is the year end based on cash recieved into sterling rather than invoices paid?

It is all accruals based.

Say you have invoiced 10,000 euro and its 1.1 at the point of invoice. You have receivables of 9090.91. Obviously this feeds into the CT calculation.

This gets paid some time later (in the next year). The rate is 1.2 at this point. Thus the payment is 8333.33. This eradicates the 9090.91 receivable and also generates a 757.58 currency loss. This will reduce the profit in Year 2.

In your scenario the actual crediting of the sterling is at a later point, and only at this time is the exchange rate known. You may keep funds in Euros across the year end. Obviously you need to keep track of what is paid and what isn't. You may then "transfer" this into a nominal account. The point being that at the point of year end it needs to be reconciled, as your account has told you.

I can't say how your accountant will handle it. He can though. If you want to know more about the principles I suggest reading this might give you a clue.

Foreign currency transactions and your bookkeeping | Business Link

[psychocandy]

It is all accruals based.

Say you have invoiced 10,000 euro and its 1.1 at the point of invoice. You have receivables of 9090.91. Obviously this feeds into the CT calculation.

This gets paid some time later (in the next year). The rate is 1.2 at this point. Thus the payment is 8333.33. This eradicates the 9090.91 receivable and also generates a 757.58 currency loss. This will reduce the profit in Year 2.

In your scenario the actual crediting of the sterling is at a later point, and only at this time is the exchange rate known. You may keep funds in Euros across the year end. Obviously you need to keep track of what is paid and what isn't. You may then "transfer" this into a nominal account. The point being that at the point of year end it needs to be reconciled, as your account has told you.

I can't say how your accountant will handle it. He can though. If you want to know more about the principles I suggest reading this might give you a clue.

Foreign currency transactions and your bookkeeping | Business Link

Thanks. Sounds a bit complicated.

Yes, in my case, invoice gets paid in euros some time later (as usual). Actual payment might then not make it into my sterling account for some time after that again. (might be still in euro account or in currency exchanging account)

[ASB]

Thanks. Sounds a bit complicated.

Yes, in my case, invoice gets paid in euros some time later (as usual). Actual payment might then not make it into my sterling account for some time after that again. (might be still in euro account or in currency exchanging account)

It's not that complicated. Remember that the balance sheet date is simply a line in the sand. This sort of thing is dealt with quite happily by most accounting software I have ever met.

Why not download one of the many free trials and try it?

Produce some reports, post some payments etc and get a feel for the accounting entries that are used.

Accounting software with options for multi-currency | AccountingWEB

I think MS have an accounting package that is free, though it was painfully slow.