Working with multiple currencies

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Working with multiple currencies

Manousaridis Angelos
I am using gnucash to track my personal expenses, nothing extremely
fancy. All of my accounts are in Euro, but recently I started using some
accounts in other currencies for money I spend abroad.

I use a "cash" account on a different currency, do a "transfer" to that
account when I change money to other currencies and then record my
travel expenses in eccount on that currency. I checked the balance in
the "expenses" in euros and it is exactly as planed.

My problem is that gnucash calculates everything according to the
last exchange rate in the Price Editor. This makes sense in the Assets,
but I don't understand how it makes sense in the expenses.

I will elaborate what I mean with an example.

Lets say that I exchange 100 euros to N dollars and spend them all. I do
this transaction and enter the rate (N/100). Everythins works fine. My
assets (cash) are reduced by 100 euros and using USD "accounts" in
"expenses", gnucash increases my expenses for 100 euros. Now, lets say
that 5 months later I exchange 100 euros to M dollars. If I make the
same thing again, ALL my expenses will be calculated using this rate,
including my old expenses! How is this correct? The old expenses were N
USD which were translated to 100 euros, now their value will change
according to the new rate!

Wouldn't it make much more sense if the old expenses were calculated
with the old rate and the new expenses with the new rate? I can
understand that assets are always calculated with the latest rate. Any
leftover dollars would be worth as much as the latest rate suggests. But
is it the same with expenses?

Am I missing something?

--
Manousaridis Angelos
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Re: Working with multiple currencies

Ivars Grinbergs
I'm newbe to GC and accounting, so I might be wrong.

But I think, there should be only one account for expenses in your base
currency. When you enter currency expenditure split/transaction (from
currency account register window), you cerdit asset/cash/currency
account by currency amount, debit expenses account by the same amount
and while on debit split, enter currency exchange rate for that
particular transaction.

This way your expenses will not fluctuate due to exchange rate fluctuations.

You can do the same by entering two transactions/splits:
- one to transfer certain amount of foreign currency asset to base
currency asset;
- second to spend base currency asset by that - converted by certain
rate - expense amount;

In later case you lose relationship that certain expenditure was made in
certain currency, unless you do something extra to link those two splits.

wbr,
Ivars

Manousaridis Angelos wrote:

> I am using gnucash to track my personal expenses, nothing extremely
> fancy. All of my accounts are in Euro, but recently I started using some
> accounts in other currencies for money I spend abroad.
>
> I use a "cash" account on a different currency, do a "transfer" to that
> account when I change money to other currencies and then record my
> travel expenses in eccount on that currency. I checked the balance in
> the "expenses" in euros and it is exactly as planed.
>
> My problem is that gnucash calculates everything according to the
> last exchange rate in the Price Editor. This makes sense in the Assets,
> but I don't understand how it makes sense in the expenses.
>
> I will elaborate what I mean with an example.
>
> Lets say that I exchange 100 euros to N dollars and spend them all. I do
> this transaction and enter the rate (N/100). Everythins works fine. My
> assets (cash) are reduced by 100 euros and using USD "accounts" in
> "expenses", gnucash increases my expenses for 100 euros. Now, lets say
> that 5 months later I exchange 100 euros to M dollars. If I make the
> same thing again, ALL my expenses will be calculated using this rate,
> including my old expenses! How is this correct? The old expenses were N
> USD which were translated to 100 euros, now their value will change
> according to the new rate!
>
> Wouldn't it make much more sense if the old expenses were calculated
> with the old rate and the new expenses with the new rate? I can
> understand that assets are always calculated with the latest rate. Any
> leftover dollars would be worth as much as the latest rate suggests. But
> is it the same with expenses?
>
> Am I missing something?
>
>  

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Re: Working with multiple currencies

Adam Funk
On 2006-10-04, Ivars Grinbergs <[hidden email]> wrote:

> But I think, there should be only one account for expenses in your base
> currency. When you enter currency expenditure split/transaction (from
> currency account register window), you cerdit asset/cash/currency
> account by currency amount, debit expenses account by the same amount
> and while on debit split, enter currency exchange rate for that
> particular transaction.
>
> This way your expenses will not fluctuate due to exchange rate fluctuations.

Hmm.  I've recently started using Gnucash and set up most of my
accounts in GBP except for a bank account (under Assets of course)
*and* a related 'Income:Interest:USA' account in USD.  (Everything
else in the Income subtree is in GBP.)

It seemed logical at the time --- am I setting myself up for trouble
later?

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Re: Working with multiple currencies

Manousaridis Angelos
In reply to this post by Ivars Grinbergs
On Wed, Oct 04, 2006 at 01:24:40PM +0300, Ivars Grinbergs wrote:

> I'm newbe to GC and accounting, so I might be wrong.
>
> But I think, there should be only one account for expenses in your base
> currency. When you enter currency expenditure split/transaction (from
> currency account register window), you cerdit asset/cash/currency
> account by currency amount, debit expenses account by the same amount
> and while on debit split, enter currency exchange rate for that
> particular transaction.
>
> This way your expenses will not fluctuate due to exchange rate fluctuations.

My base currency is Euro. So does this mean that I should't have
expenses accounts in other currencies?

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Manousaridis Angelos
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Re: Working with multiple currencies

Henry Bremridge
On Wed, Oct 04, 2006 at 03:06:51PM +0300, Manousaridis Angelos wrote:

> On Wed, Oct 04, 2006 at 01:24:40PM +0300, Ivars Grinbergs wrote:
> > I'm newbe to GC and accounting, so I might be wrong.
> >
> > But I think, there should be only one account for expenses in your
> > base currency. When you enter currency expenditure split/transaction
> > (from currency account register window), you cerdit
> > asset/cash/currency account by currency amount, debit expenses
> > account by the same amount and while on debit split, enter currency
> > exchange rate for that particular transaction.
> >
> > This way your expenses will not fluctuate due to exchange rate
> > fluctuations.
>
> My base currency is Euro. So does this mean that I should't have
> expenses accounts in other currencies?
>
Also a newbie and have not yet attempted to start multicurrency but
under the International Accounting Standards 21 the ruling for company
accounts seems to be quite clear (at least to start with....):

-   A foreign currency transaction should be recorded initially at the
    rate of exchange at the date of the transaction (use of averages is
    permitted if they are a reasonable approximation of actual). [IAS
    21.21-22]

-   At each subsequent balance sheet date: [IAS 21.23]

    -   Foreign currency monetary amounts should be reported using the
        closing rate.
    -   Non-monetary items carried at historical cost should be
        reported using the exchange rate at the date of the
        transaction.
    -   Non-monetary items carried at fair value should be
        reported at the rate that existed when the fair values
        were determined.

    This is an extract from a much longer document, I copied it from
    http://www.iasplus.com/standard/ias21.htm (a Deloitte's web site)

   
--
Henry
Wed Oct  4 17:24:59 BST 2006

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Re: Working with multiple currencies

Hendrik Boom-2
In reply to this post by Manousaridis Angelos
On Tue, Oct 03, 2006 at 02:24:15AM +0300, Manousaridis Angelos wrote:

> I am using gnucash to track my personal expenses, nothing extremely
> fancy. All of my accounts are in Euro, but recently I started using some
> accounts in other currencies for money I spend abroad.
>
> I use a "cash" account on a different currency, do a "transfer" to that
> account when I change money to other currencies and then record my
> travel expenses in eccount on that currency. I checked the balance in
> the "expenses" in euros and it is exactly as planed.
>
> My problem is that gnucash calculates everything according to the
> last exchange rate in the Price Editor. This makes sense in the Assets,
> but I don't understand how it makes sense in the expenses.
>
> I will elaborate what I mean with an example.
>
> Lets say that I exchange 100 euros to N dollars and spend them all. I do
> this transaction and enter the rate (N/100). Everythins works fine. My
> assets (cash) are reduced by 100 euros and using USD "accounts" in
> "expenses", gnucash increases my expenses for 100 euros. Now, lets say
> that 5 months later I exchange 100 euros to M dollars. If I make the
> same thing again, ALL my expenses will be calculated using this rate,
> including my old expenses! How is this correct? The old expenses were N
> USD which were translated to 100 euros, now their value will change
> according to the new rate!
>
> Wouldn't it make much more sense if the old expenses were calculated
> with the old rate and the new expenses with the new rate? I can
> understand that assets are always calculated with the latest rate. Any
> leftover dollars would be worth as much as the latest rate suggests. But
> is it the same with expenses?
>
> Am I missing something?

I suspect that the expenses should always be read in their original
currency to be truly meaningful.  I've always thought that truly
multicurrency totals would say you've spent 375 Euros, 34
Australian dollars, and five Cnadian cents on something.  But my version
of Gnucash only displays one total on the account summary window.  I
realize that implementing this (every amount of money anywhere
being potentially a sum of different currencies) would probably be more
work than it's worth, not to mention the screen layout nightmare, so
I've kept quiet about this.  (I didn't keep quiet about the use of floating
point numbers for currency many years back, because it really
mattered.  It ultimately caused a revolution in file format)

-- hendrik

>
> --
> Manousaridis Angelos
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Re: Working with multiple currencies

Derek Atkins
In reply to this post by Manousaridis Angelos
This sounds like a bug.  Can you file it in Bugzilla?

-derek

Manousaridis Angelos <[hidden email]> writes:

> I am using gnucash to track my personal expenses, nothing extremely
> fancy. All of my accounts are in Euro, but recently I started using some
> accounts in other currencies for money I spend abroad.
>
> I use a "cash" account on a different currency, do a "transfer" to that
> account when I change money to other currencies and then record my
> travel expenses in eccount on that currency. I checked the balance in
> the "expenses" in euros and it is exactly as planed.
>
> My problem is that gnucash calculates everything according to the
> last exchange rate in the Price Editor. This makes sense in the Assets,
> but I don't understand how it makes sense in the expenses.
>
> I will elaborate what I mean with an example.
>
> Lets say that I exchange 100 euros to N dollars and spend them all. I do
> this transaction and enter the rate (N/100). Everythins works fine. My
> assets (cash) are reduced by 100 euros and using USD "accounts" in
> "expenses", gnucash increases my expenses for 100 euros. Now, lets say
> that 5 months later I exchange 100 euros to M dollars. If I make the
> same thing again, ALL my expenses will be calculated using this rate,
> including my old expenses! How is this correct? The old expenses were N
> USD which were translated to 100 euros, now their value will change
> according to the new rate!
>
> Wouldn't it make much more sense if the old expenses were calculated
> with the old rate and the new expenses with the new rate? I can
> understand that assets are always calculated with the latest rate. Any
> leftover dollars would be worth as much as the latest rate suggests. But
> is it the same with expenses?
>
> Am I missing something?
>
> --
> Manousaridis Angelos
> _______________________________________________
> gnucash-user mailing list
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> https://lists.gnucash.org/mailman/listinfo/gnucash-user
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> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.
>
>

--
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       [hidden email]                        PGP key available
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