Foreign Currency Exchange Gains and Losses
Illustrative Entries

12-1-X1

Accounts Receivable

 

175,000

 

 

          Sales

 

 

175,000

 

Sold goods to a customer in England, agreeing to accept 100,000 British pounds (100,000 pounds X $1.75 spot rate = $175,000)

 

 

 

 

12-31-X1

Accounts Receivable

 

15,000

 

 

         Currency Exchange Gain

 

 

15,000

 

Year-end adjustment to increase accounts receivable to the spot rate (100,000 pounds X $1.90 spot rate = $190,000; $190,000 - $175,000 = $15,000 gain)

 

 

 

 

2-28-X2

Cash

 

170,000

 

 

Currency Exchange Loss

 

20,000

 

 

          Accounts Receivable

 

 

190,000

 

Collected 100,000 pounds and converted them to dollars (100,000 x $1.70 spot rate).  Recorded loss for decline in value of receivable since year end ($190,000 vs.$170,000)