Foreign currency Transactions

Question 1

On foreign currency purchase (AP) what is the impact on the P&L when the domestic currency increases vs the Foreign currency (.i.e USD/EUR 1.20 to US/EUR1.25)

Answer 1

A loss is recorded on the P&L because you will need more domestic currency to settle the foreign currency. The domestic currency depreciated vs the foreign currency.

Question 2

On foreign currency purchase (AP) what is the impact on the P&L when the domestic currency decreases vs the foreign currency (.i.e USD/EUR 1.25 to US/EUR1.20)

Answer 2

A Gain is recorded on the P&L because you will need less domestic currency to settle the foreign currency. The domestic currency appreciated vs the foreign currency.

Question 3

On foreign currency sale (AR) what is the impact on the P&L when the domestic currency increases vs the Foreign currency (.i.e USD/EUR 1.20 to US/EUR1.25)

Answer 3

A gain is recorded on the P&L because you will receive more domestic currency from the foreign currency receivable. The domestic currency depreciated vs the foreign currency.

Question 4

On foreign currency sale (AR) what is the impact on the P&L when the domestic currency decreases vs the Foreign currency (.i.e USD/EUR 1.25 to US/EUR1.20)

Answer 4

A loss is recorded on the P&L because you will receive less domestic currency from the foreign currency receivable. The domestic currency appreciated vs the foreign currency.

Question 5

What is the impact on the P&L for increase and decrease of Domestic currency against Foreign currency?

Answer 5

Domestic currency vs foreign currency increase
1. Purchases = Loss
2. Sales = Gain
Domestic currency vs foreign currency decrease
1. Purchase = Gain
2. Sales = Loss