Bookkeeping · Daily Workflows · Brief · Pro level
Multicurrency transactions: invoice-date rates, payment-date rates, and the gain in between
A foreign-currency invoice is booked at the rate on the invoice date; the payment arrives at the rate on the payment date. The difference is a realized exchange gain or loss — here are the entries.
A foreign-currency sale creates two conversion moments: the invoice date, which fixes your revenue, and the payment date, which fixes your cash. Rates move between them, so the cash almost never equals the receivable — and the difference is not a discount, not a fee, and not a revenue adjustment. It is a realized exchange gain or loss, and it gets its own account.
The two entries
You invoice a European client €10,000. On the invoice date the rate is 1.10, so the sale is worth 11,000 in dollars:
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable (EUR customer) | 11,000 | |
| Sales revenue | 11,000 |
Revenue is now fixed at 11,000. Rate movement after today never touches this number.
Five weeks later the client pays €10,000, but the rate has slipped to 1.06. The bank credits you 10,600:
| Account | Debit | Credit |
|---|---|---|
| Cash | 10,600 | |
| Exchange gain/loss | 400 | |
| Accounts receivable (EUR customer) | 11,000 |
The receivable clears in full. The 400 loss is the cost of the rate moving against you — a real, realized P&L item.
Had the rate risen to 1.14 instead, cash would be 11,400 and the 400 would land as a credit to Exchange gain/loss. Same mechanics for foreign supplier bills, mirrored: the payable is fixed at the bill-date rate, and paying it cheaper or dearer produces the gain or loss.
Three rules that keep it clean
- Use one rate source, consistently — your ledger's built-in feed or a named published rate. The rate you use matters less than never mixing sources.
- Never plug the difference into revenue, bank fees, or a discount. Restating revenue corrupts sales reports; burying it in fees hides a real economic exposure. Wire fees the bank actually charged are a separate line — split them out.
- Match payments to invoices explicitly. Multicurrency receivables that get "close enough" payments applied loosely leave small stranded balances that snowball into the same mess as any negative or nonsense AR balance.
Where each rate applies:
| Moment | Rate used | What it fixes |
|---|---|---|
| Invoice / bill date | That day's rate | Revenue or expense, and the AR/AP balance |
| Payment date | That day's rate | Cash received or paid |
| Period end (open items) | Closing rate | Unrealized gain/loss, if you revalue |
Period-end revaluation, briefly
Strict accrual practice revalues open foreign AR and AP at the period-end rate, booking an unrealized gain or loss that reverses at settlement. For a small business with a handful of foreign invoices, many bookkeepers skip interim revaluation and let everything realize at payment — defensible, provided you do it the same way every period and your tax preparer knows which convention you chose. This is worth a line in the year-end conversation covered in working with the tax accountant.
What to do next
- Create an Exchange gain/loss account (other income/expense section) if you don't have one.
- Pick and document your rate source and whether you revalue at period end.
- Re-check your last three foreign payments: receivable cleared in full, difference in Exchange gain/loss, wire fees split out.
Frequently asked questions
- What exchange rate do you use to record a foreign invoice?
- Book the invoice at the exchange rate on the invoice date — that fixes the revenue amount in your home currency. The receivable then sits on the books at that amount. When payment arrives, it is converted at the payment-date rate, and any difference between the two is a realized exchange gain or loss, not an adjustment to revenue.
- What is a realized foreign exchange gain or loss?
- It is the home-currency difference between what a foreign-currency invoice was booked at and what the payment actually converts to, caused by the rate moving between invoice date and payment date. Realized means the transaction settled. It is posted to an Exchange gain/loss account on the P&L — revenue itself is never restated.
- Do unpaid foreign invoices get revalued at period end?
- Under full accrual practice, open foreign-currency receivables and payables are revalued at the period-end rate, booking an unrealized gain or loss that reverses when payment settles. Many small businesses skip revaluation between years for simplicity and let the whole difference land as realized gain or loss at payment — consistent treatment matters more than which you pick.