Currency Revaluation in D365 Finance

This article provides an overview of the following for the general ledger foreign currency revaluation process - setup, running the process, calculation for the process, and how to reverse the revaluation transactions, if necessary.

As part of a period-end, accounting conventions require general ledger account balances in foreign currencies to be revalued using different exchange rate types (current, historical, average, etc.). For example, one accounting convention requires assets and liabilities to be revalued at the current exchange rate, fixed assets at the historical exchange rate, and profit and loss accounts at the monthly average. The General ledger foreign currency revaluation can be used to revalue the balance sheet and profit and loss accounts.

Note:  Foreign currency revaluation is also available in Accounts receivable (AR) and Accounts payable (AP). If you are using those modules, the outstanding transactions should be revalued using the foreign currency revaluation in those modules. The AR and AP foreign currency revaluation will create an accounting entry in General ledger to reflect the unrealized gain or loss, ensuring that the subledgers and general ledger can be reconciled. Because the AR and AP foreign currency revaluation create accounting entries in General ledger, the accounts receivable and accounts payable main accounts should be excluded from the General ledger foreign currency revaluation.

When you run the revaluation process, the balance in each main account posted in a foreign currency will be revalued. The unrealized gain or loss transactions that are created during the revaluation process are system-generated. Two transactions might be created, one for the accounting currency and a second for the reporting currency, if relevant. Each accounting entry will post to the unrealized gain or loss and the main account being revalued.

Prepare to run foreign currency revaluation

Before you run the revaluation process, the following setup is required.

• On the Main account page:

  • If the main account should be revalued in General ledger, select Foreign currency revaluation. If the main account shouldn’t be revalued (such as for AR and AP if revalued in the subledgers), clear this option.

  • If the main account is marked for revaluation, enter the Exchange rate type. This exchange rate type will be used for revaluing the main account. A separate field, Financial reporting exchange rate type, is available for financial reporting. The two fields are not kept in sync, allowing for different exchange rate types to be used for revaluation and financial reporting.

• On theLedgerpage:

  • Specify the Exchange rate type. If the exchange rate type is not defined on the main account, this exchange rate type will be used during foreign currency revaluation.

  • Specify the realized gain, realized loss, unrealized gain, and unrealized loss accounts for currency revaluation. Realized gain and realized loss accounts are used when settling AR and AP transactions, and unrealized gain and unrealized loss accounts are used for revaluing open transactions and general ledger main accounts.

• On the Currency revaluation accounts page:

  • Select different currency revaluation accounts for each currency and company. If no accounts are defined, the accounts from the Ledger page are used.

Process foreign currency revaluation

After the setup is complete, use the Foreign currency revaluation page to revalue the balances of the main accounts. You can run the process in real time or schedule it to run by using a batch.

The Foreign currency revaluation page will display the history of each revaluation process, including when the process was run, what criteria was defined, a link to the voucher created for the revaluation, and a record if a previous revaluation was reversed. To run the revaluation process, select the Foreign currency revaluation button.

The From date and To date values define the date interval for calculating the foreign currency balance that will be revalued. When you revalue profit and loss accounts, the sum of all transactions that occur within the date interval are revalued. When you revalue balance sheet accounts, the From date is ignored. Instead, the balance to be revalued is determined by going from the beginning of the fiscal year until the To date.

The Date of rate can be used to define the date for which the exchange rate should default. For example, you can revalue the balances between the date range of January 1 to January 31, but use the exchange rate defined for February 1.

Select which main accounts to revalue: All, Balance sheet, or Profit and loss. Only main accounts marked for revaluation (on the Main account page) will be revalued. If you want to further restrict the range of main accounts, use the Records to include tab to define a range of main accounts, or individual main accounts.

The revaluation process can be run for one or more legal entities. The lookup will display only the legal entities to which you have access. Select the legal entities for which you want to run the revaluation process.

The revaluation can be run for one or more foreign currencies. The lookup will include all currencies that were posted within the date range relevant for the type of main account (Balance sheet or Profit and loss), for the legal entities selected to revalue. The accounting currency will be included in the list, but nothing will be revalued if the accounting currency is selected.

Set Preview before posting to Yes if you would like to review the result of the General ledger revaluation. The preview in General ledger is different from the simulation in the AR and AP foreign currency revaluation. The simulation in AR and AP is a report, but general ledger has a preview which can be posted, without having to run the revaluation process again. The results of the preview can be exported to Microsoft Excel to retain the history of how the amounts were calculated. You cannot use batch processing if you want to preview the results of the revaluation. From the preview, the user has the option to post the results of all legal entities using the Post button. If there's an issue with the results for a legal entity, the user also has the option to post a subset of the legal entities using the Select legal entities to post button.

After the foreign currency revaluation process is complete, a record will be created to track the history of each run. A separate record will be created for each legal entity and posting layer.

 

Calculate unrealized gain/loss

The unrealized gain/loss transactions are created differently between General ledger revaluation and the AR and AP revaluation process. In AR and AP, the previous revaluation is completely reversed (assuming the transaction isn’t settled yet) and a new revaluation transaction is created for the unrealized gain/loss based on the new exchange rate. This is because we revalue each individual transaction in AR and AP. In General ledger, the previous revaluation is not reversed. Instead, a transaction is created for the delta between the balance of the main account, including any previous revaluation amounts, and the new value based on the exchange rate for the Date of Rate.

Example The following balances exist for main account 110110.

Date	Ledger account	Transaction amount	Accounting amount
January 20	110110 (Cash)	500 EUR (Debit)	1000 USD (Debit)

The main account is revalued on January 31. The unrealized gain/loss is calculated as follows.

Current balance in transaction currency	Current balance in accounting currency	Exchange rate at revaluation	New accounting currency amount	Unrealized gain/loss
500 EUR	1000 USD	166.6667	833.33 USD (500 x 1.666667)	166.67 loss (833.33 – 1000)

The following accounting entry will be created.

Date	Ledger account	Debit	Credit
January 31	110110 (Cash)		166.67
January 31	801400 (Unrealized loss)	166.67

No new transactions are posted for the month of February. The main account is revalued on February 28.

Current balance in transaction currency	Current balance in accounting currency	Exchange rate at revaluation	New accounting currency amount	Unrealized gain/loss
500 EUR	833.33 USD (1000 - 166.67)	250.0000	1250 USD (500 x 2.5)	416.67 gain (1250 – 833.33)

The following accounting entry will be created.

Date	Ledger account	Debit	Credit
February 28	110110 (Cash)	416.67
February 28	801600 (Unrealized gain)		416.67

 

Reverse foreign currency revaluation

If you need to reverse the revaluation transaction, select the Reverse transaction button on the Foreign currency revaluation page. A new foreign currency revaluation historical record will be created to maintain the historical audit trail of when the revaluation occurred or was reversed.

You can reverse the results of the revaluation out of date order, but you may need to also reverse a more current revaluation to ensure the correct balances for each revalued main account. The reversals can occur out of date order because there is no way to control which main accounts are revalued and the frequency of when they are revalued. For example, an organization may choose to revalue their cash main accounts on a quarterly basis, but all other main accounts monthly.

Currency Revaluation for AP and AR

Fluctuations in exchange rates cause the theoretical value (book value) of open transactions in foreign currencies to vary over time. This article provides information about the foreign currency revaluation process that you run to update the value of open transactions in Accounts payable and Accounts receivable.

The theoretical value, or book value, of open transactions in foreign currencies varies over time because of fluctuations in exchange rates. To update the value of open transactions in Accounts payable and Accounts receivable, run the foreign currency revaluation process. Foreign currency revaluation can be run for both Accounts payable and Accounts receivable. The process uses a new exchange rate to revalue the open amounts, or not settled amounts, on a specified date. The differences between the original posted amounts and the revalued amounts will cause an unrealized gain or loss for each open transaction. The Accounts payable and Accounts receivable subledgers are then updated to reflect the unrealized gain or loss, and an accounting entry is posted to General ledger.

 

Simulate a foreign currency revaluation

Before you revalue foreign currency amounts on open transactions, you can run a simulation report of the foreign currency revaluation for the same date and method. To run the simulation report, on the Foreign currency revaluation page, click the Simulation button. The report provides a preview of the unrealized gain or loss amount, based on the parameters that are defined for the simulation.

Process a foreign currency revaluation

Use the Foreign currency revaluation page under Periodic tasks to revalue open transactions. You can run the process in real time or schedule it to run by using a batch. When you define the settings for the revaluation process, be sure to verify whether you want to print a report of the results. The revaluation report can't be reprinted after the process is completed. If you generate the foreign currency revaluation report, it will show various balances at the customer/vendor level and the currency level:

• The balances of customers or vendors that have foreign currency transactions that have been revalued. The following balances are shown:
  • The total original balance in the foreign currency.
  • The total foreign currency amount in the accounting currency, as of the previous revaluation.
  • The total foreign currency amount in the accounting currency, as of the current revaluation.
  • The difference between the previous and current revaluation. This difference is the additional unrealized gain or loss.
• The total unrealized gain or loss for each currency.

A record is kept every time that you run a foreign currency revaluation. From the record on the Foreign currency valuation page, select Transactions to view the detailed list of transactions that were created because of the revaluation. Each voucher transaction represents the open transaction that was revalued. If an open transaction was revalued more than one time, you will see two records that use the same voucher. One record will be for the reversal of the previous unrealized gain or loss, and the other record will be for the new unrealized gain or loss. To run the revaluation process, click the Foreign currency revaluation button. Define appropriate settings for the following parameters:

• Method– The method that is used in the selected foreign currency revaluation job:
  • Standard– Foreign currency revaluation jobs are posted, regardless of whether the result is a profit or a loss.
  • Minimum– Foreign currency revaluation jobs are posted only if the result is a loss.
  • Invoice date– Foreign currency revaluation jobs use the original exchange rate of the transactions, which are revalued to their original value in the accounting currency. The effect of any prior foreign currency revaluation is canceled.
• Considered date– The date when all transactions that have open (not settled) amounts on that date are found. Foreign currency amounts are revalued by using the exchange rates that are entered on the Currency exchange rates page for the considered date. When foreign currency amounts are revalued on a considered date, this date becomes the last foreign currency revaluation date for the transactions that are adjusted. If you run foreign currency revaluation for a considered date that is earlier than the last foreign currency revaluation date on transactions that have already been adjusted, the periodic job doesn't adjust transactions that are open on the earlier considered date, but that have a more recent last foreign currency revaluation date.
• Date of rate– The date that determines the exchange rate that is used in the foreign currency revaluation.
• Use posting profile from– The posting profile that is used to enter the default main account for Accounts receivable or Accounts payable for the accounting entries of the foreign currency revaluation transactions:
  • Posting– The posting profile of the customer transaction is used.
  • Select– Enter the posting profile in the Posting profile field.
• Posting profile– If Select is selected in the Use posting profile from field, the posting profile that you enter in this field determines the posting profile of the foreign currency revaluation transactions.
• Financial dimensions– The financial dimensions that are posted on the accounting entries of the foreign currency revaluation transactions. The financial dimensions are not validated against the rules for the account structure. The account structure that was in place at the time the invoices were posted might not be the same as the rules that were in place when the revaluation was completed. There is no option to select specific financial dimensions in the revaluation process, so the account structure validation is skipped.
  • None– No financial dimensions are posted. If you have a required financial dimension in your account structure, the revaluation process is still run and creates accounting entries that have no financial dimensions. You will receive a warning message first, so that you can cancel the revaluation.
  • Table– The financial dimensions of the customer account or vendor account are posted on the foreign currency revaluation transactions.
  • Posting– The financial dimensions of the transaction that is being revalued are posted on the foreign currency revaluation transactions. By default, the financial dimensions from the original transaction's AR/AP ledger account will be used for the revaluation transaction's AR/AP main account, and the financial dimensions from the original transaction's expense/asset/revenue ledger account will be used for the revaluation transaction's unrealized gain/loss main account.

Oak Hall Group provides implementation and support services to Microsoft Dynamics 365 users, companies, partners, and Microsoft. Our team has over 50 combined years of experience with the product and implementations. Contact us for Implementation and Support Services. 

Oak Hall Group
3379 Peachtree Rd NE
Suite 555
Atlanta, GA 30326
770-821-1610
[e-mail]
www.oakhallgroup.com