What Is an Accounting Currency?

The accounting currency is the monetary unit used when recording transactions in a company's general ledger, also commonly referred to as the company's "books" or accounting records. The accounting currency may also be called the 澳洲幸运5官方开奖结果体彩网:reporting currency.

The accounting (reporting) currency is not necessarily the same as the 澳洲幸运5官方开奖结果体彩网:functional or transactional currency. The functional currency is what employees and customers use when conducting a transaction, such as a sale. The difference is especially important for large, multinational comp🎀anies that do business in many different countries.

Understanding Accounting Currency

Operating in several countries often requires doing 澳洲幸运5官方开奖结果体彩网:business transactions in a variety of 澳洲幸运5官方开奖结果体彩网:currencies. When this is the case, the currency of the company's headquarters or parent company where the 澳洲幸运5官方开奖结果体彩网:financial statements are prepared is considered the accounting currency. For companies operating in countries with a major currency, such as the U.S. dollar (USD), euro (EUR), or British pound sterling (GBP), the accounting currency may be the same as the functional currency. Companies operating in smaller mark𝓡ets with "minor" currencies are more likely to have a domestic accounting currency and a foreign functional cuꦓrrency.

For example, a Japanese electronics company based in Tokyo will likely use the Japanese yen (JPY) for its accounting currency, as that is the local currency where the company is headquartered and operates. Companies are likely to use their home country's currency, or local currency, when recording transactions, even if the sale was denominated in a foreign currency. Therefore, a Japanese firm conducting business in China will use the yen as the accounting currency, even if sales transactions are conducted using the Chinese Yuan Renminbi (CNY).

Translation to Accounting Currency

For companies or investors managing multiple currencies, the interplay of 澳洲幸运5官方开奖结果体彩网:foreign exchange rates and conversions can make the maintenance of the accounting records a complicated task. Other satellite locations or subsidiaries that use different currencies in their day-to-day operations must 澳洲幸运5官方开奖结果体彩网:convert their financial statements into the accounting currency so the statements can be consolidated. This is accomplished using either the temporal or 澳洲幸运5官方开奖结果体彩网:current rate method of 澳洲幸运5官方开奖结果体彩网:currency translation.

Temporal Method

In the temporal method, also known as the historical method, assets, and liabilities are divided into monetary and non-monetary categories. Highly liquid assets such as cash, investments, and accounts receivable are considered to be monetary asset꧟s. Likewise, liabilities due to be paid out in the short-term such as accounts payable and salaries payable are considered to be monetary liabilitieᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚs.

Under this method, monetary assets and liabilities are converted using the exchange rate in effect as of the balance sheet date. On the other hand, the 澳洲幸运5官方开奖结果体彩网:exchange rate values for non-monetary assets and 澳洲幸运5官方开奖结果体彩网:liabilities are based on the time those assets and liabilit🍸ies were acquired or incurred. An example of a non-monetary asset wo🎉uld be a fixed asset purchase, such as a piece of equipment or plot of land.

Current Rate Method

Using the current rate method, assets, and liabilities on the balance sheet are translated at the exchange rate as of the 澳洲幸运5官方开奖结果体彩网:balance sheet date. This can create a higher degree of 澳洲幸运5官方开奖结果体彩网:translation risk, as the current exchange rate may chang🐭e drastica💝lly prior to the end of the accounting period.