What is Foreign currency transaction gain or loss?
In short
A foreign currency transaction gain or loss arises when exchange rates change between the date of a transaction denominated in a foreign currency, such as a purchase on credit, and its settlement or the balance sheet date.
Key takeaways
- Receivables and payables in a foreign currency are remeasured at the current rate at each balance sheet date.
- The gains and losses go to net income, unlike translation adjustments, which go to other comprehensive income.
- Gains and losses on items designated as hedges of a net investment in a foreign operation are an exception.
Example
A payable of 100,000 euros recorded at $1.10 and paid at $1.14 produces a $4,000 transaction loss.
Where it's tested
BAR: Foreign Currency Translation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A foreign currency transaction gain arising from settling a receivable denominated in a foreign currency is: