does the currency that you work with change values before you have a chance to report them
well then you should learn how to make a home currency adjustment
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and i'll do my best to help you and of course if you feel the video helped you i hope you will
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when we report financial statements or tax forms each statement has an official date
or date range the numbers on the statements must be accurate as of the date of the statements
since currency values change all the time then you must adjust the value of any foreign held currency
that you own to make it the actual value as of the date of the financial statements
in our example we will follow from the previous video in our bank account with the bank of guyana
we currently have 10 000 guyanese dollars last february 11 we received the first 5 000 guyana
dollars and at that moment february 11 they were worth 0.006 of a dollar then a few days later
on february 15th we received the other 5000 guyana dollars and at that moment
february 15th we recorded receiving them at .007 of a dollar so what will quickbooks remember well
of course it will remember that the us dollar equivalent of the guyana dollars that we own
is now a balance of 65 as of february 15th and that's again because 5000 of those guyana dollars
were acquired at point zero zero six and the other five thousand that's in the bank account
were requi acquired at point zero zero zero seven so the first five thousand are currently worth
in us dollars thirty and the other five thousand that were acquired later on the fifteenth
are worth thirty five u.s dollars and that explains why at this moment
all 10 000 units of the guyana dollar are equal to 65 us dollars in our records and we can prove
this by opening the account here we are in the trial balance and here's the bank of guyana
stated in us dollars and if we double click we can see that first we acquired 30 us dollars worth of
guyana dollars then we acquired 35 more us dollars worth of guyana and that's why it's equal to 65.
if i double click and open the first one you can see these five thousand were received at this rate
point zero zero six and if i double click the next one you can see that the next batch of
five thousand was received at this rate 0.007 and that explains why the balance is 65 u.s
before our adjustment now in our example we must report our financial statements on march 1. we did
not have any new transactions from february 15th which is the last time we received guyana dollars
until now march 1. however on march 1 right now each guyana dollar is now worth .008
we must update the balance of the bank account to reflect the actual value in us dollars as of
the date that we report our financial statements and to do this we make a home currency adjustment
a home currency adjustment is an entry that we make to our quickbooks records that adjusts for
or corrects for the change in value of any foreign currency that we own
this is a change in value from the date of the last recorded transaction
of that currency until the date of the adjustment which is usually for financial statement reporting
so what does quickbooks actually remember in our records well quickbooks remembers
how much each of the individual units of currency and how much they were received
at at the moment that we acquired them and that reflects the current balance quickbooks
will change the value of the individual units in our records to reflect the currently updated value
which means instead of having half of them at point zero zero six and half of them at
point zero .007 after the adjustment what will happen is all of the units that we own
will all become the same value the new value per unit that we put into quickbooks and as a
result the balance of the foreign bank account will change in amount regarding the us dollars
so before we adjust we have sixty five dollars in the guyana bank account
but when we update the cost or the price of each unit that means that the value of the whole bank
account increases from sixty five dollars to eighty five u s dollars and that means we have
a fifteen dollar gain at the moment we adjust the value to make our financial statements correct
so what will be the result when we record this home currency adjustment on march 1.
well the value of the bank of guyana has increased from 65 us dollars
to 80 us dollars because of the 15 dollar gain and the increase in the rate per each unit
and of course because that's a gain then exchange gain or loss here at the bottom will
increase by fifteen dollars and we now have a total gain of twenty six dollars and thirty cents
it's very simple to enter a home currency adjustment you click list currency list then
click on the specific currency whose value you are adjusting and then in the bottom of the list
window click activities home currency adjustment now the most important thing is to put the date
of the adjustment this way quickbooks knows the value of each unit of currency from march
1 forward you click and you choose which currency you're adjusting and now quickbooks shows you the
most recent rate entered for the most recent transaction with the guyanese dollar you will
change the rate to the new rate as of the day that you are reporting your financial statements
then when you click calculate adjustment quickbooks will show you that you have a fifteen
dollar gain because the balance was sixty five dollars because the rate per unit was the old rate
the new balance is eighty dollars because now it's ten thousand units at the new rate
and the gain will be fifteen dollars you have to click in the left margin to accept
that particular adjustment and then click save and close now when we go back to the trial balance
you can see that the bank of guyana is now properly valued at eighty u s dollars and
the exchange gain or loss is exactly as what we predicted twenty six dollars and thirty cents
you can double click and you can see that this gain was recorded as a journal entry adjustment
on march 1 and it increased the gain the overall gain by 15
for that specific adjustment and one final note what else will be the result well quickbooks now
remembers that all 10 000 units of the guyana dollars we have are now each equal to 0.008
and that's why it's 80 u.s dollars so that means when you pay these guyanese dollars to a vendor in
guyana for some service that you need quickbooks will remember there are ten thousand units
of the guyana currency in the account regardless of the us dollar value on the day that you pay
you