What is the difference between the accounting methods:
- Realized and Unrealized Gain/Loss
- Recognized Gain/Loss
When you turn on the Multi-Currency option in Common Services / Company Profile on the Options page, one of the new fields that is displayed and needs to be considered is 'Gain/Loss Accounting Method'.
The method to choose for each company is best determined by the accountant. There are specific reasons to select one over the other, and the primary difference between the two is when the foreign exchange gain or loss is recorded (into which fiscal period). The differences are outlined here:
Realized and Unrealized Gain/Loss Accounting Method
- Posts the foreign exchange differences into the realized gain/loss accounts when the transaction is settled, or paid.
- If the transaction is outstanding at a month end when the revaluation is done, the fx gain/loss is posted to the unrealized gain/loss account and this entry is reversed in the following period.
- Sage recommends the realized gain/loss account be an income statement account and the unrealized gain/loss account be a balance sheet account, because the unrealized values are temporary. However, an argument can be made for adding unrealized gains or losses into income. Therefore, it is recommended to discuss this with your accountant to verify the best accounts to use for your company.
Recognized Gain/Loss Accounting Method
- Posts the foreign exchange differences into realized gain/loss accounts when the transaction is revalued (if it is outstanding) or when it is paid - whichever comes first.
- If the transaction is outstanding at a month end when the revaluation is done, the fx gain/loss is posted to the realized gain/loss accounts. When the transaction is paid, if there are further fx variances, these too are posted to the realized gain/loss accounts.
Here is a very basic example of a transaction as it is processed by Sage using each of these Accounting Methods.
For more information on where to set the foreign exchange gain / loss accounts, see Setting the FX Gain/Loss Accounts