Foreign Exchange Evaluation

After accounts receivable, the next part we’ll learn about is foreign exchange evaluation. Under this, the first topic we’ll see is how to maintain the foreign exchange rate. Now here we use a transaction code, OB08. Let us see how we do that. This is the SAP menu path.

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First, we’ll go to Financial Accounting, then General Ledger, then Environment. Under that we’ll go to Current Settings, and we’ll click on the Enter Translation Rate settings. So, this Enter Translation Rate is nothing but OB08 transaction code. After this we’ll get a screen where we have to maintain the exchange rate.

So here we’ll maintain the exchange rate type as M and we’ll provide the exchange rate type in this particular field. So wherever it will find this particular exchange rate type, it will give the exchange rate type as M. After maintaining these rates, we’ll click on the save button. So this is the process of maintaining the exchange rates. 

Next we’ll see how to do the Gain Loss. Now here first we’ll see about Realized Gain Loss. Now here for booking vendor invoice in foreign currency, we’ll go to the general ledger view of that vendor invoice.

So this is the general ledger view for this particular document. Then we’ll see how to make the payments in the foreign currency, that is in USD. 

So here we’ll click on the display currency to view the exchange gain loss on the payment transactions. So we’ll click this particular general ledger view, we’ll click this particular line item, and we’ll click on the display currency to check the gain loss on this payment transaction. Now here the amount is in negative, so we’ll select this particular line item and we’ll click on the display currency to view the gain loss on this particular payment transaction. So this is how we see the realized gain loss. 

 

Next, we’ll see Unrealized Gain Loss. Now for that we have to go to the SAP menu path, that is General Ledger. Under that we’ll go to Periodic Processing, Then we’ll go to Closing. In that, we have an option called Valuate, where we’ll select Foreign Currency Valuation. 

Now this is the path to check the unrealized gain or loss. Let us see the use of this particular path. Here all open items in the foreign currency are evaluated as part of the foreign currency valuation. Now here the first point states that the individual open items of an account in foreign currency from the basis of the valuation, that is every open item of an account in foreign currency is valuated individually. Second is the total difference from all the open items in an account is posted to a financial statement adjustment account. The account, therefore, retains its original balance. And the third use is the exchange rate profit or loss, from the valuation is posted to a separate expense or revenue account for exchange rate differences as an offsetting posting. So these are the uses of open items in a foreign currency.

 

Next, we’ll see the features of the particular foreign currencies. First feature is unrealized exchange rate differences. Here when we evaluate the open items in foreign currency, the exchange rate difference is determined and is posted as an unrealized exchange rate difference. Next feature is the realized exchange rate difference. Foreign incoming payment, that is, when we are clearing the open items, the exchange rate is determined. Since the exchange differences that were not realized are reserved, the full exchange rate difference is posted as realized. And the third and the last feature is reserving exchange rate difference postings. Here on the specified reversal date or in the reversal period, the posted exchange rate differences are automatically reversed after the valuation run by an inverse posting. So, these are the three features of this realized and unrealized exchange rate postings. Now here we’ll see the foreign currency valuation that is for unrealized loss or gain.

 

Here we’ll provide the values like company code, then valuation key date, and the vendor number. Now here we’ll have to select the radio button as no GIR accounts under the GL account, and will check the checkbox as valuate vendor open items. Now after providing these values, we’ll click on the execute button. Now after that, we’ll get a screen where we have to maintain the posting details.

So we’ll click on the radio button, Create Postings. Then we’ll give the details like document date, posting date, and the reversal posting date. After that, we’ll click on the execute button, and we’ll get a screen where it will give the details of the foreign currency valuation. 

Now after this, the system will create a batch for the execution of the batches. So here to create a batch we’ll go to transaction code SM35.

Now here this is a batch session overview. So the transaction code is SM35. Now our session name is FAGL_FC_VALUE. So this is the vendor name which we have provided. Now we’ll click on this particular line with the session name and we’ll click on the process icon.

 

After clicking on the process icon we’ll get modes to be selected. 

So here we’ll select the process mode as foreground mode, and we’ll click on this particular process icon. Once we click on this process icon, we’ll get a display document overview. Now here we’ll get the line items which we have created. So here we’ll select this particular line item. Now this below is for period 8, that is fiscal year 8. 

And this below is for period 9, fiscal year 9.

So this is how we get the display view of this particular document. Now we’ll select this line items. 

Now here the valuation area 10 needs to use for 0L ledger, that is the general ledger view, and the valuation area 20 needs to use for SL ledger, that is the SL general ledger view. This is how we use the valuation area and we calculate the gain or loss for that particular amount made to that vendor.

 

Next, we’ll see revaluation or restatement of the general ledger account. Now here, under foreign currency balance sheet, accounts are evaluated as part of the foreign currency valuation. The first point on the revaluation of the general ledger is the balance, that is, the foreign currency balance of the general ledger account is managed in the foreign currency forms, the basis of the valuation for each foreign currency and foreign currency balance sheet account. The result of the valuation is posted to the valuated account or to an adjustment account. And last, the exchange rate profit or loss from the valuation is posted to a separate expense or revenue account for exchange rate differences as an offsetting posting.

This is how we do the general ledger account revaluation. First, the balance which we get from the foreign currency is managed into an account in the foreign currency form, and the valuation for each foreign currency are maintained in a balance sheet account. Then the result of that valuation is posted to an valuated account or an adjustment account. And finally, the profit or loss which we gain from that valuation is posted to a separate exchange or separate expense or revenue account for exchange rate differences. So this is how we do the evaluation of a general ledger account.