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Calculate average and daily exchange rates

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According to the requirements for accounting foreign currencies under "Act C of 2000 on Accounting", the cost of foreign currency holdings comprises on of the following:

  • The functional currency value that is calculated using the foreign currency rate at the time when the holdings are obtained.
  • The functional currency value that is calculated using the average rate or the rate that is determined by the first in, first out (FIFO) method.

In legal entities that have Hungarian country context, the function for calculating the average exchange rate for outgoing petty cash and bank transactions is available. When journal lines have outgoing petty cash or bank transactions, the calculation algorithm of the average exchange rate uses the summarized amounts of the accounting currency and the foreign currency before the specified transaction date.

This article explains how to use the function for calculating the average currency exchange rate for outgoing bank and cash transactions. It also explains how to use the function for calculating the daily exchange rate for incoming and outgoing bank and petty cash transactions.

Daily exchange rate

You can use the function for calculating the daily exchange rate if you created ledger journal lines that have bank or petty cash transactions before you entered the daily currency exchange rates. The journal lines will have the currency exchange rate that was valid on the previous date. Therefore, they must be recalculated after the new currency rate on the current date is entered.

This example walks you through the function for calculating the daily exchange rate in the DEMF legal entity.

Before you begin, go to Tax > Indirect tax > Sales tax > Sales tax settlement periods. On the Period intervals tab, create intervals through March 31, 2020.

  1. Go to General ledger > Currencies > Currency exchange rates, and select the line, from USD to EUR.
  2. Select Add, and set the fields to the following values:
  • Start date: 2/29/2020
  • Exchange rate: 92
  1. Select Save.
  2. Go to General ledger > Journal entries > General journals, and select New.
  3. In the Name field, select GenJrn.
  4. Select Lines, and create the following lines.
Date Account type Account Debit Credit Offset account type Offset account Currency Exchange rate
March 1, 2020 Customer DE-010 100 Bank DEMF USD USD 92
March 1, 2020 Customer DE-011 200 Bank DEMF USD USD 92
March 1, 2020 Vendor DE-001 150 Bank DEMF USD USD 92
March 1, 2020 Vendor DE-01001 250 Bank DEMF USD USD 92
  1. Select Save, and verify that the currency exchange rate value on the lines is 92.
  2. Go to General ledger > Currencies > Currency exchange rates, and select the line, from USD to EUR.
  3. Select Add, and set the fields to the following values:
  • Start date: 3/1/2020
  • Exchange rate: 91
  1. Select Save.
  2. Go to General ledger > Journal entries > General journals.
  3. Select the journal that you created earlier, and select Lines.
  4. Select Functions > Exchange rate calculation.
  5. In the Exchange rate calculation dialog box, set the fields to the following values:
  • From date: 3/1/2020
  • Calculation method: Daily exchange rate
  1. Select OK, and review the following data.
Date Account type Account Debit Credit Offset account type Offset account Currency Exchange rate
March 1, 2020 Customer DE-010 100 Bank DEMF USD USD 91
March 1, 2020 Customer DE-011 200 Bank DEMF USD USD 91
March 1, 2020 Vendor DE-001 150 Bank DEMF USD USD 91
March 1, 2020 Vendor DE-01001 250 Bank DEMF USD USD 91

Notice that the Exchange rate column is set to 91 for all rows.

Average exchange rate

This example walks you through the function for calculating the average exchange rate for a bank account. Average rate is calculated for outgoing cash and bank transactions.

  1. Go to General ledger > Currencies > Currency exchange rates, and select the line, from USD to EUR.
  2. Select Add, and create the following lines.
Start date Exchange rate
March 1, 2020 91
March 2, 2020 92
March 3, 2020 93
  1. Go to General ledger > Journal entries > General journals, and select New.
  2. In the Name field, select GenJrn.
  3. Select Lines, and create the following lines that have incoming bank transactions.
Date Account type Account Debit Credit Offset account type Offset account Currency Exchange rate
March 1, 2020 Bank DEMF USD 100 Customer DE-010 USD 91.0000
March 2, 2020 Bank DEMF USD 200 Customer DE-011 USD 92.0000
  1. Select Post.
  2. Go to General ledger > Journal entries > General journals, and select New.
  3. In the Name field, select GenJrn.
  4. Select Lines, and create the following lines that have incoming and outgoing bank transactions.
Date Account type Account Debit Credit Offset account type Offset account Currency Exchange rate
March 3, 2020 Bank DEMF USD 100 Customer DE-012 USD 93.0000
March 3, 2020 Bank DEMF USD 150 Vendor DE-001 USD 93.0000
March 3, 2020 Bank DEMF USD 250 Vendor DE-01001 USD 93.0000
  1. Verify that the currency exchange rate value that is automatically entered on the lines is 93.
  2. Select Functions > Exchange rate calculation.
  3. In the Exchange rate calculation dialog box, set the fields to the following values:
  • From date: 3/1/2020
  • Calculation method: Average exchange rate
  1. Select OK, and verify that the currency exchange rate value for the outgoing bank transactions has been changed to 92.
Date Account type Account Debit Credit Offset account type Offset account Currency Exchange rate
March 3, 2020 Bank DEMF USD 100 Customer DE-012 USD 93.0000
March 3, 2020 Bank DEMF USD 150 Vendor DE-001 USD 92.0000
March 3, 2020 Bank DEMF USD 250 Vendor DE-01001 USD 92.0000

The value 92.0000 for second line was calculated as (100 * 0.91 + 200 * 0.92 + 100 * 0.93)/(100 + 200 + 100). Three earlier incoming transactions for 100, 200, and 100 were considered in the calculation formula.

The value 92.0000 for third line was calculated as (100 * 0.91 + 200 * 0.92 + 100 * 0.93 - 150 * 0.92)/(100 + 200 + 100 - 150). Three earlier incoming transactions and one earlier outgoing transaction were considered in the formula.

The Average exchange rate calculation method is available for the outgoing bank transaction. It considers posted bank transactions and not-posted bank transactions in the current general journal that were created before considered outgoing bank transaction, for the period that starts on the "from date" that is specified in the dialog box and ends on the date of the outgoing bank transaction. This method calculates the average exchange rate for these transactions as a result of dividing total amount of all earlier transactions in the foreign currency by total amount of all earlier transactions in the accounting currency. The resulting exchange rate is then assigned to outgoing transaction. The average exchange rate is calculated by dimension values for dimensions that are active in the account structure that the cash or bank ledger account belongs to.

[NOTE!] To calculate the average exchange rates for cash and bank accounts based on the main account code only and not considering financial dimensions, enable the feature, (Hungary) Calculate the average exchange rate based on the main account code only in the Feature management workspace.

The Daily exchange rate and Average exchange rate methods are also available for the petty cash transactions that you enter in the slip journal (Cash and bank management > Cash transactions > Slip journal). The same algorithm that is used for the bank transactions is used to calculate the average rate.