For Evaluation Only. Lesson 5 Working with Foreign Currencies. Sage Simply Accounting Premium Lesson Objectives. Level 2

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3 Lesson Objectives Sage Simply Accounting Premium 2011 Level 2 Lesson 5 Working with Foreign Currencies In this lesson, you will learn how to set up Simply Accounting to work with a foreign currency and perform transactions in a foreign currency. Upon successful completion of this lesson, you will be able to: set up the necessary accounts for working in a foreign currency set up import duty information account for purchases or sales in foreign currency work with exchange rates create foreign currency vendors and customers create foreign currency reports v1.00 CCI Learning Solutions Inc. 149

4 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 Dealing with Foreign Currency When you buy or sell goods or services with vendors or customers in other countries, you will be dealing in a foreign currency. The Simply Accounting Pro version only enables you to set up one foreign currency. The Sage Simply Accounting Premium 2011 version enables you to use an unlimited number of currencies. Suppose you purchased US$1,000 of goods from a vendor located in the United States when the exchange rate was US$1.00 = CAD$1.10. You will record this purchase as follows in Canadian dollars, your home currency. DR Inventory 1, CR Accounts Payable 1, Now suppose that you pay the invoice 30 days later, and the Canadian dollar has depreciated to US$1.00 = CAD$1.15. You will now require more Canadian dollars to pay the invoice than the amount recorded in the Accounts Payable account. The difference will be posted to the Currency Exchange and Rounding account, as in the following accounting transaction: DR Accounts Payable 1, DR Currency Exchange and Rounding CR Chequing Bank Account 1, Another use for the Currency Exchange and Rounding account is to handle rounding errors that result from the conversion calculation. Suppose the same purchase transaction above involved two types of inventory goods when the exchange rate was US$1.00 = CAD$1.10. The accounting transaction would appear as follows (the Foreign Currency Amount column is shown here for information purposes only): Foreign Currency Amount Debit Credit DR Inventory Hardware DR Inventory Software CR Currency Exchange and Rounding 0.01 CR Accounts Payable 1, , Setting Up Foreign Currency 1, , To use a foreign currency, you must first set it up in Simply Accounting. You must also set up the general ledger account to handle the currency exchange rate changes and the exchange rounding. Learn the Skill Before you learn how to set up the United States dollar as a foreign currency, you will first set up your currency exchange gains and losses account. 1 Open Harmony House Music - Your Name. Accept the session date of April 30, Close all unnecessary windows. 2 Select the Company module in the navigation pane, and then click the Chart of Accounts icon. 3 In the Accounts window, scroll to find the 5650 Currency Exchange & Rounding account. 4 Open the account and select the Class Options tab. Make sure the Account Class is: General & Admin Expense. 5 Close the General Ledger window. 6 Close the Accounts window v1.00 CCI Learning Solutions Inc.

5 Working with Foreign Currencies Lesson 5 Learn the Skill In this exercise, you will learn how to set up the United States dollar as a foreign currency and enter the current exchange rate. 1 On the Home window menu bar, click Setup, Settings, click Company, then Currency. 2 In the Currency window, click the Allow Transactions in a Foreign Currency check box. Allow Transactions in a Foreign Currency Currency Code Symbol Activates the foreign currency capability. Automatically, the Home Currency is the Canadian Dollar or the currency used in the country where your business is located. In this case, this value will be Canadian Dollars by default. Filled in automatically by Simply Accounting when the foreign currency is selected. This field can be changed. Shows the character symbol used for the foreign currency you have selected. This field is filled in automatically by Simply Accounting, but can be changed. Symbol Position Indicates where the foreign currency symbol is located in the currency value at the Leading (left) or the Trailing (right) end. This field is filled in automatically by Simply Accounting, but can be changed. Thousands Separator The character symbol used when the currency amount is at or above 1,000. This field is filled in automatically by Simply Accounting, but can be changed. Decimal Separator Decimal Places The character symbol used to indicate decimal values if there are any. This field is filled in automatically by Simply Accounting, but can be changed. Indicates how many digits are used in the currency after the decimal separator. This field is filled in automatically by Simply Accounting, but can be changed. 3 Click the drop-down list arrow for the Track Exchange and Rounding Differences in list box, and select the 5650 Currency Exchange & Rounding account. 4 Click the magnifying glass for the Foreign Currency field, scroll to select United States Dollars from the list, (press to immediately scroll to the United States Dollar) the foreign currency that you will be using, and then click Select v1.00 CCI Learning Solutions Inc. 151

6 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 5 Click Exchange Rate. 6 Click in the topmost blank field in the Date column, and enter the current working date (not the Session Date) April 15, Press to jump to the Exchange Rate column. Type:.99 and press again. The Date/Exchange Rate lists the exchange rates between your home currency and foreign currency. Be sure to use the correct conversion formula: the number of Canadian dollars (the home currency) that equates to one whole unit in the foreign currency. 8 Click the drop-down list arrow for the Display a reminder if the exchange rate is old list box, and select One Week from the list. Select the check box. Display a reminder if the exchange rate is.. old activates a reminder in the Daily Business Manager as the session date changes, and as transaction dates change. You can enter up to two years of dates and exchange rates. If you are creating a transaction with a date between two dates listed in this table, Simply Accounting will automatically use the earlier date. Click the (Web) button to take you to your reference source for exchange rate history. Type in the Web site that will be used for the Currency Exchange Web Site. One valid Web site which provides real-time up to date Exchange Rates is: 9 Once done, click OK. Then click OK again to accept the new Settings. Setting Up a Foreign Currency Bank Account If you conduct transactions frequently in a foreign currency especially both purchases and sales you should set up a bank account that is denominated in that currency to save the cost of conversion for each transaction. Most Canadian financial institutions offer US dollar accounts so you can set one up if you are dealing in that currency. Alternatively, you can set up an account in a financial institution where your foreign customers and/or vendors are located. In either case, you must account for the transactions that flow through that bank account v1.00 CCI Learning Solutions Inc.

7 Working with Foreign Currencies Lesson 5 Learn the Skill In this exercise, you will learn how to set up a bank account for your foreign currency. 1 Select Company, then click the Chart of Accounts icon. 2 In the Accounts window, scroll to the top of the chart of accounts. Notice that there is now a Foreign Balance column added to this window. There is also a break down into Canadian and US dollars under Accounts Receivable. 3 Click (Create). 4 Enter the following information for this new General Ledger account: Account # and name: 1065 CIBC USD Bank Account Account Account type: Subgroup Account Fill in the following information on the Class Options tab: v1.00 CCI Learning Solutions Inc. 153

8 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 5 Save and Close the General Ledger window. 6 Close the Accounts window. Now link this foreign bank account to the sales and purchases transactions. 7 In the Home window, click Setup, Settings, click Payables, then click Linked Accounts. 8 Click the magnifying glass for Bank account to use for United States Dollars. 9 Select 1065 CIBC USD Bank Account. Click Select. 10 On the Settings dialog box, click Receivables, and then click Linked Accounts. 11 Repeat previous steps 8 and v1.00 CCI Learning Solutions Inc.

9 Working with Foreign Currencies Lesson 5 12 Click OK. Learn the Skill Now assume that you transferred US$2,000 from your 1060 CIBC Chequing Account (which is in Canadian dollars) to your CIBC US Dollar Account. 1 Select Company, then click the General Journal icon. 2 Enter the following information for April 15, Select your USD Currency in order for the 1065 USD Account to be available in the drop down list. Notice that all currency amounts on this form are in US dollars. Now display the accounting entry to see what it looks like. Watch the Exchange Rate. 3 Click Report, Display General Journal Entry v1.00 CCI Learning Solutions Inc. 155

10 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 Notice that the amount taken from the bank was CAD$2, It is now $1, because of the exchange rate. 4 Close the General Journal Entry window. 5 Click Post. 6 Close the General Journal. Setting Up a Supplier The process of setting up a supplier that uses a foreign currency is mostly the same as that of a domestic supplier, except for the currency type. Simply Accounting will then convert the invoices to the home currency automatically whenever necessary, such as at payment time or printing of financial reports. If you deal with suppliers in both currencies (e.g., a Canadian-based company with outlets in the United States), a separate supplier record should be set up for the foreign currency transactions with the supplier. When the US outlet has the same name as its Canadian counterpart, differentiate between the two records by adding (US) or * after the name for the US dollar record. Learn the Skill In this exercise, you will learn how to set up a supplier that uses a foreign currency. 1 Select Payables, then click the Suppliers icon. 2 In the Suppliers window, click (Create). Enter the basic information about the supplier. 3 In the Supplier text field, type: West Coast Music Suppliers. 4 On the Address tab enter the following data: Contact: Joan Francis Street 1: 147 Ocean View Road City: San Francisco Province: CA Postal Code: Country: USA Phone 1: (408) Supplier Since: 04/15/ v1.00 CCI Learning Solutions Inc.

11 Working with Foreign Currencies Lesson 5 5 Click the Options tab, and enter the following data: Currency: USD % discount: 2 if paid in.. days: 10 Net due in.. days: 30 Calculate Discounts before Tax: Yes Print Contact on Cheques: Yes Be sure to set the correct currency value for the supplier record. 6 Click Save and Close. 7 Close the Suppliers window v1.00 CCI Learning Solutions Inc. 157

12 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 Setting Up for Sales to Foreign Customers Pricing Inventory and Services Once you set up a foreign currency in the system, Simply Accounting will automatically enable you to state the price of any inventory or service item using both currencies. It is inadvisable to simply state the foreign currency price as the equivalent converted value of the home currency price due to the constant exchange rate fluctuations. For example, a CAD$ item may be priced at US$ on one day, and then US$ on the next day, solely because of a change in the exchange rate. Instead, you should set up separate prices in both the home and foreign currencies, and keep them unchanged unless the cost of the item and/or the exchange rate has changed enough to warrant a price change. Using the example above, you may want to price your item at CAD$ and US$ Learn the Skill In this exercise, you will learn how to enter foreign currency prices for your inventory and set up a customer using foreign currency. First, modify your inventory and services records to have pricing in the foreign currency. 1 Select Inventory & Services from the navigation pane, and then click the Inventory & Services icon. 2 In the Inventory & Services window, double-click S-110 Guitar electric to open that record. 3 In the Inventory & Services Ledger window, click the Pricing tab, click the drop-down arrow for the Currency field, and then select United States Dollars from the list. 4 Change the Pricing Method for Regular and Preferred to Fixed Price by clicking on the words Exchange Rate. 5 Enter the following values in the Price per Selling Unit section: Regular Selling Price: 1, Preferred Selling Price: 1, If you calculate the exchange rate used to determine the US selling price, you will notice that you used a higher rate for both prices. Simply Accounting enables you to do this because you may want an extra margin to cover short-term exchange rate fluctuations. 6 Save and Close the inventory record, and close the Inventory & Services window v1.00 CCI Learning Solutions Inc.

13 Working with Foreign Currencies Lesson 5 Setting Up Foreign Customers The process of setting up a customer that uses a foreign currency is mostly the same as that of a domestic customer, except for the currency type. Simply Accounting will then convert the invoices to the home currency automatically whenever necessary, such as at payment time or printing of financial reports. If you will sell to customers in both currencies (for example a Canadian-based company with outlets in the United States), a separate customer record should be set up for the foreign currency transactions. Where the US outlet has the same name as its Canadian counterpart, differentiate between the two records by adding (US) or * after the name for the US dollar record. Learn the Skill Now create a customer with foreign currency pricing. 1 Select Receivables, then click the Customers icon. 2 In the Customers window, click (Create). 3 In the Customer text field, type: Bellingham Music School. 4 Click the Address tab, and enter the following data: 5 Click the Ship-to Address tab, and make sure the check box for Default ship-to address is selected. 6 Click the Options tab, and enter the following data: Currency: USD % discount: 1.00 if paid in.. days: 15 Net due in.. days: v1.00 CCI Learning Solutions Inc. 159

14 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 Be sure to set the correct currency type for the customer record. 7 Click the Statistics tab, and enter the following Credit Limit values: CAD: USD: Click Save and Close. Notice the values for this customer are shown in US dollars in the Customers window. 9 Close the Customers window. Now tell Simply Accounting how to quote the default prices on sales transactions. 10 In the Home window, click Setup, Settings. 11 Click Inventory & Services, click Options v1.00 CCI Learning Solutions Inc.

15 Working with Foreign Currencies Lesson 5 Notice that there is now a Foreign Prices on Sales Invoices are area. 12 Click Cancel, as you will make no changes to the setting. Tracking Import Duty Information If you do business outside of the country, you may need to account for tariffs, excise taxes, and duties on merchandise that you import. You pay duty to the customs broker who brings the goods through customs for you, not to the vendor. When you receive an invoice from the broker, treat it as you would any other invoice to be paid. Duty is usually calculated as a percentage of the foreign price. However, the broker's invoice charges duty in the home currency. If you wish, you can include duty on a purchase invoice to get an estimate of the true price of the item, but you will not know the exact amount of duty you owe until you receive an invoice from the customs broker. After you pay duty, you can see the amounts you have paid on the All Transactions Detail report. Once you have activated this feature, an option to charge duty on imported items appears on the Options tab for each vendor record. Then, when you purchase items from that vendor, you can enter the duty as a percentage or amount for each item. In all inventory and service items, you can set the duty percentage usually charged on the item on the Taxes tab. Learn the Skill Before activating the Import Duty feature, we must create a new account to track the expense associated with this activity. 1 Select Company, then click the Chart of Accounts icon. 2 Click (Create). 3 Enter the following information for this new General Ledger account: Account # and name: 5310 Import Duty Charges Account type: Group Account Class Options: Cost of Goods Sold 4 Click Save and Close, and then close the Accounts window. Now we will activate the Import Duty feature, using the following method: v1.00 CCI Learning Solutions Inc. 161

16 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 5 In the Home window, click Setup, Settings, Payables, and then Duty. Select the Track duty on imported items check box and set the Import Duty Account. 6 Click OK to activate the feature. Making Purchases Simply Accounting will know to use foreign currency pricing in a purchase invoice based on the currency setting in the vendor record. The item prices will automatically display based on the home currency price, converted using the current exchange rate. You should expect to enter the item prices and set the exchange rate to the current rate on each invoice because these values are affected by frequent exchange rate fluctuations. Learn the Skill In this exercise, you will learn how to create a purchase transaction with a vendor using foreign currency. Assume that there was no purchase order issued previously and as this vendor has not built any credit history with you yet you have to pay in full on delivery. 1 Select Payables, then click the Purchase Invoices icon. 2 Enter or select the following values to be paid by Cheque #1 and Paid From 1065 CIBC USD Bank Account. Allocate 100% of the Freight to the Sales Department. Note the Exchange rate of 0.98 and the quoted purchase price of USD $760 for this item v1.00 CCI Learning Solutions Inc.

17 Working with Foreign Currencies Lesson 5 As you tab past the date field, an Exchange Rate information window opens to advise you that stored Exchange Rate values are more than one week old. 3 Enter.98 into the Exchange Rate field and place a checkmark into the Make this the default rate field and click OK. 4 Click Report, Display Purchases Journal Entry on the menu bar. 5 Close the Purchases Journal Entry window. 6 Post the invoice and close the Purchases Journal window. 7 On the Home window menu bar, click Setup, Settings, click Company, then Currency. 8 In the Settings window click Exchange Rate. Note that the rate we just used has been saved to our Exchange Rate list. 9 Click Cancel in the Exchange Rate window and the Settings window. Making Sales Using a Foreign Currency Entering sales invoices using a foreign currency is nearly identical to using the home currency, except that all prices in the invoice are stated using the foreign currency. Simply Accounting will know that the customer uses the foreign currency because you will have set up the currency indicator in the customer record v1.00 CCI Learning Solutions Inc. 163

18 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 Learn the Skill In this exercise, you will learn how to create a sales invoice for a customer using foreign currency. 1 Select Receivables, then click the Sales Invoices icon. 2 Enter or select the following data. Allocate 100% of item S-110 and 100% of the Freight to the Sales Department. New Exchange Rate: Item: S-110 Quantity: 2 Guitar - electric Base Price: $1, All amounts on this invoice are in US dollars. 3 Click Report, Display Sales Journal Entry on the menu bar. 4 Close the Sales Journal Entry window. 5 Post the invoice. Before posting, the following confirmation opens v1.00 CCI Learning Solutions Inc.

19 Working with Foreign Currencies Lesson 5 6 Click Yes to save the rate into your Exchange Rate list. 7 Close the Sales Journal window. 8 On the Home window menu bar, click Setup, Settings, click Company, then Currency 9 In the Settings window click on Exchange Rate. Note that the rate we just used has replaced the rate saved previously for this date. 10 Close all windows to return to the Home window. Tracking Currency Fluctuations Pay Later Sales transacted on one day and collected some time later will almost certainly be subject to a variation in the Exchange Rate. The above sale completed to Bellingham Music School will be collected two weeks later by which time the USD/CAD rates will have changed. Learn the Skill 1 In the Home window, on the Maintenance menu, advance the session date forward to May 31, Accept the warning message, don t backup the data file. 2 Select Receivables, then click the Receipts icon. 3 In the From field, select Bellingham Music School from the list. Click the Disc. Taken field, then to the Amount Received field. 4 Enter the new Exchange Rate of 0.98 into the Exchange Rate field v1.00 CCI Learning Solutions Inc. 165

20 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 Complete the receipt to appear as shown: 5 Click Report, Display Receipts Journal Entry on the menu bar. Note the amount of $18.24 credited to the Currency Exchange & Rounding account, due to the change in the exchange rate. If the rate had fluctuated in the other direction, for example an exchange rate of.96, the result would be as follows: Note the Debit to the Currency Exchange & Rounding account of $ Close the Receipts Journal Entry window, and if necessary, change the Exchange Rate back to Post the Receipt and close the Receipts Journal v1.00 CCI Learning Solutions Inc.

21 Working with Foreign Currencies Lesson 5 Foreign Currency Reporting You have already seen that the chart of accounts now reflects both Canadian and foreign currency balances for each account. Foreign currency figures can now be shown in a variety of reports. Learn the Skill In this exercise, you will create reports that reflect both Canadian and foreign currency values. First, generate a Trial Balance. 1 In the Home window, click Reports, Financials, Trial Balance. In the Trial Balance - Modify Report window, click to enter into the Show Foreign Balance check box. If necessary change the date to May 31, Click OK to generate the report v1.00 CCI Learning Solutions Inc. 167

22 Lesson 5 Sage Simply Accounting Premium 2011 Level 2 3 Close the Trial Balance window. 4 Now generate a Customer Aged Report for a foreign customer. 5 In the Home window, click Reports, Receivables, Customer Aged, Detail. In the Customer Aged Report - Modify Report window, click to enter a in the check box for Show Foreign Amounts. Click Bellingham Music School. 6 Click OK to generate the report. 7 Repeat steps 5 and 6 but without the foreign values. 8 Close the Customer Aged Detail report to return to the Home window. 9 Close any other windows to return to the Home window v1.00 CCI Learning Solutions Inc.

23 Working with Foreign Currencies Lesson 5 Backing Up Simply Accounting Data Files 1 Select File, Backup from the Home window menu bar, or click (Backup) from the toolbar. The Online Backup window will open. 2 Replace the File Name with HHM Lesson 5 end. If necessary, check with the instructor to find the correct procedure or location for backup of files. 3 Ensure Compact data before backing up to save disk space is selected and click OK. 4 Click OK to acknowledge that the backup is complete. 5 Close Simply Accounting. Lesson Summary In this lesson, you have learned how to set up Simply Accounting to work with a foreign currency and perform transactions in the foreign currency. Now that you have completed this lesson, you should be able to: set up the necessary accounts for working in a work with exchange rates foreign currency create foreign currency vendors and customers set up import duty information create foreign currency reports account for sales or purchases in foreign currency Review Questions 1. How many foreign currencies can be set up in the Simply Accounting by Sage 2011 Pro? 2. Where do you set up the system to use foreign currency? 3. Selling prices in foreign currency should have an allowance for exchange rate fluctuations built into them. a. True b. False 4. A customer or vendor record cannot have dealings in more than one currency. A separate record is required for the foreign transactions. a. True b. False 5. The exchange rate can be changed for each individual foreign currency transaction in Simply Accounting. a. True b. False 6. All foreign currency transactions are converted into Canadian currency before being recorded in Simply Accounting. a. True b. False 7. Receivables and Payables reports can be set up to show either foreign currency values or Canadian Dollar values when they are displayed. a. True b. False 8. The Trial Balance can be set up to show both foreign currency and Canadian Dollar values for the appropriate accounts. a. True b. False v1.00 CCI Learning Solutions Inc. 169

24 Lesson 5 Sage Simply Accounting Premium 2011 Level v1.00 CCI Learning Solutions Inc.