Manage Foreign Exchange Difference
You can also create transactions in foreign currencies in ERPNext. The system updates the current exchange rate between the base currency of the business and the currency of the supplier or customer when a transaction is created in a foreign currency.
You may receive or make a payment at a different exchange rate than the one specified in the original Sales/Purchase Invoice because exchange rates are constantly changing. ERPNext uses the Exchange Gain/Loss account to automatically correct this discrepancy in the books.
The steps to Manage Foreign Exchange Difference are as follows:
1. Add Expense Account
Make an Exchange Gain/Loss account to handle currency differences.
- The expense side of the profit and loss statement is typically where this account is created.
- Nevertheless, based on your accounting needs, you can also classify it under a different heading.
2. Book Payment Entry
ERPNext automatically determines the Exchange difference when you book a payment against a foreign currency invoice.
- Exchange Gain is booked if the payment exchange rate exceeds the invoice rate.
- Exchange Loss is recorded if the payment exchange rate is less than the invoice rate.
3. Automatically Determine Exchange Gain or Loss
ERPNext automatically posts the forex difference after the Payment Entry is submitted.
For Example:
- Invoice: \$1,000 at 1 USD = 0.78 GBP > £780
- Payment: \$1,000 at 1 USD = 0.80 GBP > £800
- Difference = £20 Gain
The following Journal Entry is automatically posted by ERPNext:
- Credit Debtor: £780
- Debit Bank Account: £800
- Gain/Loss on Credit Exchange: £20
