Foreign Currency Revaluation: A Complete Guide

This article explains why foreign currency revaluation is important, when to use it, and how to perform it in Versa.

What is Foreign Currency Revaluation?

If your business holds assets or liabilities in a foreign currency (such as a CAD bank account when your home currency is USD), the value of those items in your home currency changes as exchange rates fluctuate.

Foreign currency revaluation is the process of adjusting the home currency value of your foreign currency balances to reflect current exchange rates. This ensures your financial statements accurately represent the true value of your assets and liabilities.

Example

You have a Canadian bank account with CAD 10,000. When you opened it, the exchange rate was 0.80 (1 CAD = 0.80 USD), so it was worth USD 8,000 on your books.

At month-end, the exchange rate is now 0.75 (1 CAD = 0.75 USD). The account is now worth USD 7,500 — a decrease of USD 500. This USD 500 is an unrealized foreign exchange loss that should be recognized in your financial statements.

Why is Revaluation Important?

• Accurate Financial Reporting: Your balance sheet should reflect the true value of assets and liabilities in your home currency
• Compliance: Accounting standards (GAAP, IFRS) require foreign currency items to be reported at current exchange rates
• Better Decision Making: Management needs accurate financial data to make informed decisions
• Audit Readiness: Auditors expect foreign currency accounts to be properly revalued

Best Practices

When to Revalue

• Month-end: Most companies revalue foreign currency balances at the end of each month
• Quarter-end: At minimum, revalue at the end of each fiscal quarter
• Year-end: Always revalue before closing the fiscal year

What to Revalue

• Foreign currency bank accounts
• Accounts receivable in foreign currencies (unpaid invoices)
• Accounts payable in foreign currencies (unpaid bills)
• Foreign currency loans or liabilities

Temporary vs. Permanent Adjustments

There are two approaches to recording revaluation entries:

Recommendation: For routine period-end revaluation, use the Temporary (Auto-Reverse) option. This allows you to create fresh revaluations each period based on current exchange rates.

How to Perform Foreign Currency Revaluation in VersaCloud

Step 1: Access the Tool

Navigate to GL → Foreign Currency Revaluation

Step 2: Set the Transaction Date

Enter the date for the revaluation entry. This is typically the last day of the month or period you are closing.

Step 3: Select the Offset Account

Choose the account where foreign exchange gains and losses will be recorded. The default is your "Foreign Exchange Gains and Losses" account.

Step 4: Select Items to Revalue

Check the boxes for the types of items you want to revalue:

• Include Receivables (A/R): Revalue unpaid foreign currency invoices
• Include Payables (A/P): Revalue unpaid foreign currency bills
• Include Foreign Currency Assets: Revalue foreign currency bank accounts and cash accounts. You can select specific accounts or leave all unchecked to include all.
• Include Foreign Currency Liabilities: Revalue foreign currency liability accounts. You can select specific accounts or leave all unchecked to include all.

Step 5: Configure Reversal Options

• Auto-reverse this revaluation entry: Check this box for temporary period-end revaluations (recommended for most cases)
• Reverse on: The date when the entry will automatically reverse. Defaults to the first day of the next month.

Uncheck the auto-reverse box if you want the adjustment to be permanent.

Step 6: Enter Exchange Rates

Enter the current exchange rate for each foreign currency. The system will suggest a rate based on your recent transactions, but you should verify this matches the actual rate as of the revaluation date.

Tip: You can find current exchange rates from your bank or financial news sources like XE.com.

Step 7: Create Draft Transaction

Click Create Draft Transaction. The system will calculate the gains and losses and create a draft journal entry.

Step 8: Review and Post

You will be taken to the draft transaction screen where you can:

• Review each line item and the calculated amounts
• Make any necessary adjustments
• Click Post Transaction when ready to finalize

How Versa Adjusts Home Currency Value (Technical Detail)

One challenge with foreign currency revaluation is: how do you change the USD value of a bank account without changing the CAD balance?

VersaCloud uses a clever accounting technique to accomplish this.

The Problem

A normal journal entry to a bank account would change both the foreign currency balance AND the home currency value. But for revaluation, we only want to change the home currency value — the actual CAD in the bank hasn't changed.

The Solution: Debit and Credit the Same Account with Different Multipliers

Versa creates three journal entry lines:

What Happens

Foreign Currency Balance (CAD):

• Line 1: +1.00 CAD
• Line 2: -1.00 CAD
• Net effect: 0 CAD — The CAD balance is unchanged!

Home Currency Value (USD):

• Line 1: +$1.00 (debit at multiplier 1.00)
• Line 2: -$0.75 (credit at multiplier 0.75)
• Line 3: -$0.25 (credit to FX Gains/Losses)
• Net effect on bank account: +$0.25 adjustment

Result: The CAD balance stays the same, but the USD book value of the account is adjusted to reflect the new exchange rate. The difference is recorded as an FX gain or loss.

Why This Works

By using different multipliers (exchange rates) on the debit and credit to the same account, the system can adjust the home currency value while keeping the foreign currency balance unchanged. The third line to the FX Gains and Losses account ensures the overall journal entry is balanced.

Real-World Example

Your CAD bank account has CAD 253,249.01 with a USD book value of $189,936.75. The current exchange rate is 0.75.

Target USD value: CAD 253,249.01 × 0.75 = $189,936.76

Current USD value: $189,936.75

Adjustment needed: $0.01

The system creates:

After posting, the CAD balance is still CAD 253,249.01, but the USD book value is now correctly stated at $189,936.76.

Frequently Asked Questions

How often should I revalue?

Most businesses revalue monthly. At minimum, revalue at each quarter-end and year-end.

What exchange rate should I use?

Use the exchange rate as of the revaluation date (typically month-end). This is usually the closing rate from your bank or a reputable financial source.

Should I use auto-reverse or permanent?

For routine period-end revaluation, use auto-reverse. This is the standard practice and allows for fresh revaluations each period. Use permanent only for corrections or special circumstances.

Can I revalue just one bank account?

Yes. When you check "Include Foreign Currency Assets," a list of accounts will appear. Select only the account(s) you want to revalue.

Why does the journal entry show debits and credits to the same bank account?

This is how Versa adjusts the home currency value without changing the foreign currency balance. By debiting and crediting the same account with different exchange rate multipliers, the foreign currency amount nets to zero while the home currency value is adjusted. See the "How Versa Adjusts Home Currency Value" section above for details.

What happens when an auto-reverse entry reverses?

On the reversal date, the system automatically creates an opposite entry that undoes the revaluation. This resets the account to its previous state, allowing you to create a new revaluation with the current exchange rate for the new period.

Can I edit or delete a revaluation after posting?

Posted transactions cannot be edited. To correct a revaluation, you can reverse the transaction and create a new one with the correct values.

Need help? Contact our support team if you have questions about foreign currency revaluation.