Before you enable multicurrency in QuickBooks Online, make sure you understand the effects of enabling this feature in your QuickBooks Online company.
Some consequences you should note before you enable multicurrency:
- Once enabled, you can’t turn this feature off
- Once you set your home currency, you can’t change it
- Rates are updated every four hours from real-time exchange rates
- Enabled, this feature may prevent importing and exporting to other QuickBooks versions, like from Desktop to Online
Enable multicurrency and add currencies
To enable this feature, click on the Gear icon and go to Company Settings. Click on the Advanced tab and find the Multicurrency setting.
Once multicurrency is enabled, you can add and remove currencies from your lists.
- You won’t be able to delete a currency once you’ve added a transaction with that currency
You can add and edit currencies once you’ve enabled this feature. A Manage Currencies link will be available near the setting.
You can also view a list of currencies by going to the Gear icon and All Lists > Currencies.
To add a currency, click on Add Currency and select the currency from the dropdown menu.
QuickBooks Online will maintain a history of the exchange rates for your list of currencies so that historical documents entered will have the correct rates. Rates may not be available if you go too far back.
What happens with a multicurrency transaction
Let’s take a look at what happens with a multicurrency transaction. Because exchange rates constantly change, you’re likely to have different rates between linked transactions.
For instance, you’re likely to see one rate on an invoice and a different rate when you receive payment. Then you may have another rate when you create the deposit. See how QuickBooks Online handles these different exchange rates below.
For this article, we’ll use USD as the home currency and EUR for foreign currency. The same principle applies regardless of what home or foreign currency you’re using.
When you enable multicurrency, QuickBooks Online will create a new account called Exchange Gain or Loss. This account will contain the difference due to changing exchange rates.
Below, we have an invoice for 100 EUR at an exchange rate of 1 EUR to 1.1 USD for a total of 110 USD. When you create the invoice, your Accounts Receivable (A/R or AR) account will be debited the 110 USD.
Then we’ll receive payment with a rate of 1 EUR to 1 USD. This payment will credit the A/R account 110 USD and debit the Undeposited Funds account for the 100 USD you received.
Since the exchange rate on the day of payment is 1 instead of 1.1, there’s a 10 USD difference, which is posted to the Exchange Gain or Loss account.
The amounts are reconciled because of the Exchange Gain or Loss account.
What happens when you create a deposit to move the funds to your bank account?
QuickBooks Online will automatically calculate the rate based on the deposit date.
For example, you create a bank deposit and the exchange rate is now 1 EUR to 1.3 USD, QuickBooks Online will automatically calculate and post the difference.
See below for the transaction journal with the bank deposit.
The new difference of 30 USD is posted as a credit to the Exchange Gain or Loss account.
The net difference between the invoice, payment, and deposit is 20 USD.
By posting the differences to the Exchange Gain or Loss account, you’ll be able to track the differences caused by changing exchange rates.
When you run a Profit and Loss report, the Exchange Gain or Loss account will factor into your numbers. Because of this account, you’ll have a better idea of the impact exchange rates have on your business.
Ultimately, the Exchange Gain or Loss account allows you to accurately track your finances and throughout the entire transaction flow.
Why is my reporting wrong for multicurrency accounts?
You may see strange balances for your bank accounts on your balance sheet due to how QuickBooks Online handles exchange rates. These balances may also affect your Profit and Loss reports.
One common problem is that foreign currency bank accounts may hold a balance in the home currency value even though the actual bank balance is zero.
For instance, you receive 1000 EUR from a customer for a sale. At the time of the transaction, QuickBooks Online used an exchange rate of 1 EUR to 1 USD. Your bank account balance is now 1000 USD.
Then you purchase inventory for 1000 EUR and paid with that bank account. But the exchange rate at the time of purchase is 1 EUR to 2 USD.
While your bank account may reflect a 0 EUR balance, QuickBooks will show a home currency value of -1000 USD balance.
The home currency value is now different because of the differences between the exchange rate at the time of transaction and the payment date.
See the balance sheet for this transaction below.
You’ll also see a balance in your Exchange Gain or Loss account, leading to a negative net income because of the higher currency exchange rate.
In order to resolve this issue, you’ll have to create a home currency adjustment on the bank account.
Before you do this, you’ll want to speak to your accountant to ensure that these adjustments don’t affect other accounts.
You should only make these adjustments once you understand the impact they’ll have on your accounts.
- Home currency adjustments only affect the home currency value of your foreign accounts, not the actual foreign balance
Learn more about home currency adjustments from QuickBooks Online.
Click on the Gear icon and go to Currencies.
Find the currency you want to revalue (the currency of the bank account). In this case, it’s EUR. Click on the little down arrow and select Revalue currency from the dropdown menu.
Make sure the bank account you want to revalue is selected. Click on Save.
Afterward, you can run your balance sheet report to see that home currency adjustment fixed the balance on the bank account.
When you create the home currency adjustment, QuickBooks Online creates a currency re-evaluation journal entry with the date and rate used. These $0.00 journal entries can be used to track all adjustments made.
- You won’t be able to edit certain details like exchange rate, dates, or amounts for currency adjustments
- You may have to delete the journal entry if you’ve made a mistake and need to adjust those values
In our example above, QuickBooks Online created a journal entry to credit the Exchange Gain or Loss account 1000 USD and debit the EUR bank account 1000 USD. The result is that your accounts will show properly when you run reports.
You shouldn’t constantly revalue currencies because these adjustments will affect your accounts.
If some of your bank accounts are in foreign currencies, then reconciling all your transactions can be a little tricky because of the way QuickBooks Online handles multicurrency transactions.
Read frequently asked questions about home currency adjustments if this article doesn’t help with your situation.
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