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Currency – Overview Of Module

Prelude Desktop software is designed to seamlessly expand to include transacting and reporting in foreign currencies. Integrated with the core financial ledgers, ordering, invoicing and stock modules, the foreign currency module offers the ability to buy and sell products and services, process cash receipts and payments, report sales and purchase activity in foreign currencies. Management Reports (i.e. Balance Sheet and Profit & Loss reports) are presented in the business home currency with foreign currency exchange differences calculated in real-time based on the current foreign currency exchange rates.

The features of Foreign Currency include:

* Unlimited user-defined foreign currency codes and descriptions
* Unlimited foreign currency bank accounts
* Foreign currency customer and supplier accounts
* Buying and selling currencies for products and services
* Multiple selling currencies for products and services
* Process customer/supplier receipts/payments in customer/supplier or Home currency
* Easily switch between Home/Foreign currency Customer/Supplier/Nominal Enquiries
* Balance Sheet, Profit & Loss exchange rates for management reporting
* Specific individual transaction exchange rates
* Automatic calculation of Profit/Loss on exchange in management reports

Foreign Currency reports

Standard reports that can be previewed to screen, printed, saved to a variety of file formats and emailed.

* List Exchange Rates
* Potential Loss/Gains Sales
* Potential Loss/Gains Purchases
* Exchange Difference Reports
* Many Sales and Purchases reports can be viewed in Home or Foreign currencies, e.g.

Aged Debtors / Creditors
Sales / Purchase Daybook Listings
Customer / Supplier Turnover

Foreign currency – exposure risks – an insight
If you do business with overseas customers and suppliers and receive or pay money for goods and services in foreign currencies, then your profits may be exposed to risks associated with changes in foreign currency exchange rates. This is best illustrated with a simple example as follows –

A company which normally trades in Pounds Sterling (£) does business with a new US customer and invoices the customer in US Dollars $), granting 30 days credit.

Let’s say that the invoice is for $1,500 and that, at the time of the invoice, £1.00 was worth $1.50 – i.e. the $/£ exchange rate is $1.50/£.

At this exchange rate, the $1,500 owed by the customer is equivalent to £1,000 and the company reports this value as sales and therefore included as such in profit.

After 30 days, the customer pays the $1,500 due, but now the exchange rate has moved to $1.60 – i.e. £1.00 is worth $1.60.

The company’s bank converts the $1,500 received to £937.50 using this exchange rate.

After having reported a £1,000 profit, the company actually only receives £937.50 and now must now report a reduction of profit of £62.50.

This loss is referred to as the Foreign Currency Exchange Difference.

The uncertainty about the movement of foreign currency exchange rates is known as Foreign Currency Exchange Risk.

After 30 days £1 could have been worth $1.65, resulting in a bigger loss or it could have been worth $1.40 resulting in a further profit
to the £1,000 already reported.

If a significant amount of your business is done in foreign currencies, even a small variation in exchange rates could have a significant impact on your profits.

If there is some foreign currency activity in your business, it may be appropriate for your business to account for foreign currencies, to calculate and report the profits or losses that can arise as currency exchange rates change. However, even if you do business in foreign currencies, it is not always necessary to account for foreign currencies. For example, if foreign currency transactions are of small monetary value or occur only occasionally, the exchange risk can be small and may not warrant the cost and administration of accounting for foreign currencies. Or if they are for a fixed or regular amount, the exchange risk can be mitigated with certain financial instruments that can be provided by your bank or the financial markets.

These and other factors should be considered and are beyond the scope of this help document.

If you are in any doubt you should consult your accountant, bank manager or Prelude distributor.


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