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How do you record sales for a restaurant with selling prices in a foreign currency and collected-cash likewise? The prices were established in home currency but shown in foreign currency on the menus and in the POS for convenience to the foreign guests, the majority of the customer base. A sample transaction is noted below.
Home Currency – USD
Foreign Currency – GBP (Stronger)
Fx Rate – 1.50 USD to 1 GBP (Spot Rate)
Base Rate – 1.10 USD to 1 GBP (Reporting Rate)
Tax Rate – 10%Transaction – Sold 2 items for 11 GBP (incl tax) each. Collected 11GBP and 16.50 USD. What is the Journal entry? I would think the reporting rate is used to record the sales and the difference between the reporting rate and the fx rate is credited to a “gain on foreign exchange” account. However, does this mean I am understating my value of sales and by extension, my tax collected and to be paid over to the government? Or am I doing this the right way because my prices are technically set in the home currency?
DR CR
Sales ((10 × 2) × 1.10) 22.00
Tax ((1 × 2) × 1.10) 2.20
Cash ((10 × 1.50) + 16.50) 31.5
Fx Gain (31.50 – 24.20) 7.30Strictly (although most impractical) every transaction should be translated at the rate that obtained on the date of the transaction
In practice, conversion at an average rate is acceptable
However, in the situation that you have set out above, the variation in the rates (1.10 … 1.50) is ridiculously unrealistic!
Record at actual rate (or at average rate where sensible)
That should answer all your questions – I think
OK?
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