Foreign currency banking

Foreign currency bank accounts

A bank account must be assigned a currency. All transactions made using the account will then be made in that currency and the balance of the account will also be in that currency. It is not possible to change the currency of a bank account once transactions exist in the account.

Every transaction made into a foreign currency bank account will require an exchange rate to be given. The exchange rate will be used to convert the transaction into your base currency. Both the foreign and the base currency balances are stored on the accounting journal. Since foreign currency bank transactions are converted at the time of entry it is likely that the bank account balance will need revaluing periodically to ensure Brightpearl shows a true representation of your bank asset.

Revaluing foreign currency bank accounts

This applies only when multi-currency is switched on.

Exchange rates are always changing, so to ensure your balance sheet reports accurate asset values of your foreign currency bank accounts, Brightpearl provides a bank account revaluation tool. The tool allows you to set the base currency value of your bank account to a certain value as of a certain date. The exchange rate is automatically calculated and the accounting is created.

How to revalue a foreign currency bank account

This applies only when multi-currency is switched on.

  1. Go to Accounting > List bank accounts.
  2. Locate the foreign currency bank account and click Revalue base currency.
  3. In the pop-up window, select the date up to which you wish to revalue transactions. This will exclude any bank activity entered after this date and display the balance as of that date.
  4. Enter the base currency value of the bank account at that date.
  5. Click the Post exchange rate variance journal button.

    bank reevaluation modal

Foreign currency rounding correction rows

When a foreign currency bank receipt or payment is entered, the transaction will be recorded in both the transaction currency (bank currency) and your base currency. The base currency value is calculated using the transaction exchange rate. Brightpearl accounting is recorded to 2 decimal places, this means that due to rounding on each journal row the base currency and foreign currency journal totals may not exactly add back up. When this happens, a journal correction row will automatically added to ensure the journal balances.

bp journal journal

Moving money between foreign currency bank accounts

Each bank account in Brightpearl is assigned a currency. When transferring money between bank accounts of different currencies an exchange rate will be required. The following types of bank transfer can be handled in Brightpearl:

  • Base currency to base currency
  • Foreign currency to same foreign currency
  • Base currency to foreign currency
  • Foreign currency to base currency
  • Foreign currency to a different foreign currency - triangulation - requires a two stage transfer process 

Only the last type of transfer requires a two stage process to handle the accounting transactions. All accounting journals in Brightpearl hold the transaction debits and credits, the currency and the exchange rate to base currency, which used to calculate the base currency debit and credit values. The exchange rate is always the transaction currency to base currency. In the case of a transfer between 2 different foreign currencies the exchange rate is between one foreign currency and another and for this reason, this type of transfer requires 2 accounting journals - achieved by performing 2 bank transfers. It’s best described with an example:

Where Brightpearl base currency = GBP, a bank transfer is needed to transfer 100 Euros to US Dollars at an exchange rate of 1.10

The 100 Euros is first transferred to a base currency bank account and then from the base currency account it is transferred to US Dollars account.

bank triangulation

In this example, the first transfer is from the Euro bank account to a base currency (GBP) clearing account. Make a note of the received amount as this will be needed in the second stage.

bt triangulation1

The accounting journal for this transfer shows both the EUR transaction debits and credits and the base currency GBP debits and credits.

bt triangulation jnl1

The second stage is to move the money into the USD bank account. This is done using another bank transfer from the clearing account to the USD bank account. The transfer amount must be the same as the GBP received amount in the first stage transfer so that no balance remains in the GBP clearing account. The exchange rate used must be that which will convert the GBP amount into the final USD received balance required.

bt triangulation2

The accounting journal for this transfer shows both the USD transaction debits and credits and the base currency GBP debits and credits.

bt triangulation2

The result is that EUR 100 was withdrawn from the Euros bank account and USD 110 was deposited in the US Dollars bank account. No balance remains in the clearing account.

Why is the foreign currency bank balance zero, but there is still a base currency balance?

Brightpearl converts each foreign currency transaction to base currency at the time the transaction is entered. Over time the exchange rate changes so new transactions are valued at a different base amount than earlier ones. For example:

Today - Deposit of EUR 120 at 1.2 converts to GBP 100

Tomorrow - Withdrawal of EUR 120 at 1.25 converts to GBP 96

This leaves a EUR balance of zero, but a GBP balance of 4. In order to bring the base currency balance in line with the true foreign currency balance the account needs to be revalued. 

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