Coverting Foreign Currencies in Financial Records - 65635

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What types of journal entries may be required when converting foreign currencies in financial records? Provide examples of the types of entries and when they might be used. (Ch. 6 of Advanced Accounting)

 

 

Solution Description

 

What types of journal entries may be required when converting foreign currencies in financial records? Provide examples of the types of entries and when they might be used. (Ch. 6 of Advanced Accounting)

 

If a company enters into a foreign transaction it must follow the GAAP that relate to foreign currency exchange transactions. Besides following the GAAP it's important to know how to record the transactions and the current exchange rates. Every time the company has a foreign currency exchange transaction it must follow two steps or two transactions. The first step occurs on a day the company enters a transaction. For example, a US company signs a contract with a French company to buy goods for 2,000 euros. The US company must convert/translate the amount to dollars using the current exchange rate ($1.25 for 1