Bank foreign currency revaluation

This article provides an overview of the process of bank foreign currency revaluation. It explains how to set up and run the process, and provides information about the calculation for the process. It also explains how to reverse revaluation transactions, if reversal is required.

As part of a period end, accounting conventions require that you revalue bank account balances in foreign currencies by using different exchange rate types (current, historical, average, and so on). Use the bank foreign currency revaluation feature to revalue one or more bank accounts. This feature is also a global feature. Therefore, from a single page, you can revalue banks across all the legal entities that you have access to.

Prepare to run foreign currency revaluation

Before you run the revaluation process, complete the following setup steps.

• On the Ledger page, specify the exchange rate type. If you don't define an exchange rate type on the main account, the revaluation process uses the exchange rate type from the Ledger page.
• On the Ledger page, specify the realized gain, realized loss, unrealized gain, and unrealized loss accounts for currency revaluation. Realized gain and realized loss accounts are used when Accounts receivable and Accounts payable transactions are settled. Unrealized gain and unrealized loss accounts are used to revalue open transactions and general ledger main accounts.
• On the Currency revaluation accounts page, select different currency revaluation accounts for each currency and company. If you don't define accounts, the process uses accounts from the Ledger page.
• On the Cash and bank management parameters page, on the Number sequences tab, add a number sequence for foreign currency revaluation.

By using the Exchange rate type enhancement for bank foreign currency revaluation feature, you can use additional exchange rate types for foreign currency revaluation. Define accounting currency exchange rate types and reporting currency exchange rate types for each legal entity or bank account. When you run foreign currency revaluation, these defined exchange rate types override the default type that's defined in the ledger setup. In addition, the Enhancements to bank foreign currency revaluation feature introduces a refined calculation logic for unrealized gains and losses, especially when financial dimensions are used on bank transactions.

1. Go to Cash and bank management > Setup > Cash and bank management parameters.

2. On the General tab, in the Exchange rate type source field, select one of the following values:

   • Ledger – Use the exchange rate type that's defined in the ledger setup.
   • Specific – Use the accounting currency exchange rate type and reporting currency exchange rate type that are defined in the current legal entity.
   • Bank – Use the accounting currency exchange rate type and reporting currency exchange rate type that are defined in the bank account.

Process foreign currency revaluation

After you complete the setup, use the Foreign currency revaluation page in Cash and bank management to revalue the balances of one or more bank accounts across all legal entities. You can run the process in real time, or you can schedule it to run by using a batch.

The Foreign currency revaluation page shows the history of each revaluation process. It shows when you ran the process and what criteria you defined, and it provides a link to the voucher that was created for the revaluation. It also shows whether you reversed a previous revaluation. To run the revaluation process, select Foreign currency revaluation on the Action Pane to open the Bank - foreign currency revaluation dialog box.

The Revaluation date field defines the cutoff date for calculating the foreign currency balance that you want to revalue. The sum of all bank transactions that occurred up through this date is revalued.

The Exchange rate date field defines the date of the exchange rate that you want to use to revalue the currency balances. For example, you can revalue the balances as of January 31 but use the exchange rate that is defined for February 1.

You can run the revaluation process for one or more legal entities. The lookup shows only the legal entities that you have access to. Select the legal entities for which you want to select the bank accounts that are eligible for foreign currency revaluation. The grid shows all the bank accounts for those legal entities.

Set the Preview before posting option to Yes if you want to review the results of the revaluation before you post it. The foreign currency revaluation has a preview that can be posted. You don't have to run the revaluation process again. You can export the results in the preview to Microsoft Excel to keep a history of how the amounts were calculated. You can't use batch processing if you want to preview the results of the revaluation.

Select OK to process the foreign currency revaluation. A record is created to track the history of each run. A separate record is created for each legal entity and posting layer.

Calculate unrealized gain or loss

In Cash and bank management, the bank currency is considered to be the base currency and it isn't revalued. The balance of the bank account in the accounting currency is revalued using the exchange rates between the bank currency and the accounting currency on the Exchange rate date. The balance of the bank account in the reporting currency is also revalued using the exchange rates between the bank currency and the reporting currency on the Exchange rate date.

A transaction is created for the difference between the balance of the bank account and the new balance that is calculated for the accounting currency. Another transaction is created for the difference between the balance of the bank account and the new balance that is calculated for the reporting currency. The entries for these transactions are marked as reconciled.

No entry is made for the accounting currency if the bank currency matches the accounting currency. Likewise, no entry is made for the reporting currency if the bank currency matches the reporting currency.

The foreign currency revaluation transaction is also split across the dimensions that are found on the bank transactions. The split is based on the balance for each dimension. For example, the total bank balance is 10,000, but the balance for business unit 001 is 4,000, whereas the balance for business unit 002 is 6,000. In this case, 40 percent of the revaluation amount is posted to the revaluation account that has business unit 001, and 60 percent is posted to the revaluation account that has business unit 002. If the account structure doesn't include a business unit, the full amount is posted to the revaluation account.

Bank foreign currency revaluation enhancement

The Enhancements to bank foreign currency revaluation feature provides an alternative way to calculate unrealized gains and losses for bank accounts. This feature changes how balances are evaluated when financial dimensions are used on bank transactions. Instead of calculating the gain or loss at the total bank account level and allocating it proportionally across dimensions, the enhanced logic calculates balances by considering either all financial dimensions or no financial dimensions. It then calculates the unrealized gain or loss per ledger account based on the selected option. This approach helps avoid disproportionate gains or losses when positive and negative balances exist across different dimensions.

Example 1 - Different exchange rate on the dimensions

The following table shows three ending balances in the transaction currency (EUR) for a foreign currency bank account in the USMF legal entity. The accounting currency is USD, and the reporting currency is USD.

Assume the exchange rate between EUR and USD is 1:1.21 on the revaluation date. The system calculates the gain or loss as follows:

Example 2 - Positive and negative balance on the dimensions

The following table shows one positive balance and one negative balance in the transaction currency (EUR) for a foreign currency bank account in the USMF legal entity. The accounting currency is USD, and the reporting currency is USD.

Assume the exchange rate between EUR and USD is 1:1.21 on the revaluation date. The system calculates the gain or loss as follows:

Reverse foreign currency revaluation

If you need to reverse the revaluation transaction, select Reverse transaction on the Foreign currency revaluation page. The system creates a new foreign currency revaluation historical record to maintain the historical audit trail that tracks when the revaluation occurred or was reversed.

To reverse several revaluations, you must reverse the most current revaluation first. Then continue to reverse older revaluations in date order. You can then process new revaluations for the periods that you reversed.

Troubleshooting bank foreign currency revaluation

If bank foreign currency revaluation runs successfully but doesn't generate any gain or loss amounts, verify the following conditions:

• The Enhancements to bank foreign currency revaluation feature is enabled.
• The Reset foreign currency revaluation, define dimension level process has been completed for the affected bank accounts.
• The revaluation date is later than the reset posting date.
• The bank account has an open balance in a foreign currency after the reset date.

If historical revaluation data exists and the reset hasn't been run, bank accounts might be blocked from revaluation or produce no updated amounts