Foreign Currency Transactions

Foreign Currency Transactions - JosephM.DAdamo...

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University of Rhode Island BUS 402 Advanced Accounting 2010 - 2011 Joseph M. D’Adamo Course Outline #8: Accounting and Reporting Issues involving Foreign Currencies Page 1 of 35 I. Foreign Currency Accounting A.  Issues Addressed 1. Individual Transactions involving Fixed Amounts of a Foreign Currency Receivable denominated as a fixed amount of a foreign currency   Provides an amount  of U.S. dollars that changes as exchange rates change OR Payable denominated as a fixed amount of a foreign currency   Requires an amount of  U.S. dollars that changes as exchange rates change 2. Conversion of Financial Statements of a Foreign Entity into the U.S. Dollar  A foreign subsidiary controlled by a U.S. parent must be consolidated into the U.S. parent  for financial reporting purposes   If the foreign subsidiary does NOT maintain its records in U.S. dollars   its statements  must be converted from their foreign currency denomination into U.S. dollars. B. Terminology 1. Exchange Rates a. Direct Method  (Direct Quotation) USED BY GAAP A direct quotation is  the domestic price of  one unit of a foreign currency According to Yahoo! Finance, the U.S. $ price of one Canadian $ (CAD) @ 4:52  PM on Friday, July 3, 2009 was $0.8615 USD o $ 10,000 CAD receivable from a customer   Provided $8,615 U.S. if received  and converted on July 3 o $10,000 CAD payable to a supplier   Required $8,615 U.S. be converted if  settled on July 3
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Course Outline #8: Accounting and Reporting Issues involving Foreign Currencies Page 2 of 35 b. Indirect Method  (Indirect Quotation) An indirect quotation is a foreign price of one unit of the domestic currency According to Yahoo! Finance, the CAD $’s price of one USD $ @ 4:52 PM on  Friday, July 3, 2009 was  $1.1608 CAD o A U.S. tourist received $116.08 CAD in exchange for $100 USD on July 3 c. To Convert from One Quotation to the Other 1/$0.8615 USD per $1 CAD = $1.1608 CAD per $1 USD OR 1 / $1.1608 CAD per $1 USD = $0.8615 USD per $1 CAD 2. Exchange Rate Measurements a. Current Exchange Rate   = Spot Rate Exchange rate for the immediate delivery of currency b. Forward Exchange Rate Current rate for exchanging two currencies at a specific future date c. Historical Exchange Rate Exchange rate in existence in the past when stock was issued or assets were  acquired by a foreign subsidiary d. Average Exchange Rate Considers the exchange rate fluctuations during a period of time
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Course Outline #8: Accounting and Reporting Issues involving Foreign Currencies Page 3 of 35 Used to convert transactions of a foreign subsidiary that occurred about evenly 
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This note was uploaded on 04/03/2012 for the course BUS 402 taught by Professor Joshephd'adamo during the Fall '09 term at Rhode Island.

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Foreign Currency Transactions - JosephM.DAdamo...

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