When a company decides they need to use foreign currency in NetSuite there are a number of decisions to be made. These decisions can only be made once the company has decided what aspects of multi-currency usage they need.
In this paper I shall consider the various issues in tracking different currencies for a company that buys or sells goods or services in more than one currency. There are a number of other details and features that NetSuite offers and we recommend that a company considers all aspects carefully before making decisions and implementing multi-currencies.
NetSuite also caters for a company that owns subsidiaries working in different currencies via OneWorld. I shall consider their situation in a separate paper.
Record actual cost in foreign currency
When a company buys or sells anything in other than their base currency (sterling for UK) they may want their system to record the value of that item in its currency. For example if a company buys products from South Korea they would want to record the fact that it cost 100,000,000 South Korean won (KRW) rather than 100,000,000 in sterling.
Estimate base (sterling) value of foreign currency transactions
Having bought products in one currency a company may want to estimate how much it costs in sterling in order to decide what price to sell it at. This is an.
Similarly an company is likely to want to know what the sterling value of a sale price is in order to judge what margin is expected compared to sterling-based costs.
These are estimates at this stage because until the invoice from the supplier is paid the actual cost of the goods in sterling is unknown and similarly until a payment is received from a customer the actual sterling price in unknown.
For example in May the company may receive 100,000,000 KRW worth of goods from the supplier but not actually send money to the supplier until July. The sterling rate for KRW will probably vary over two months and even if it does not vary the actual rate paid by the company will depend upon how the 100,000,000 KRW are bought – from which bank etc. Therefore until such time as the bill is paid the company is working on an estimate of how much the goods cost in sterling.
Estimate sterling value of foreign currency balances
Another reason why an company would need to record the estimated cost in sterling of any outstanding currency balances is to maintain a position at any time of the state of the business in accounting terms for example sterling cost of goods or value of accounts receivables in the profit and loss and value of inventory, bank balance or fixed asset in the balance sheet.
An outstanding currency balance could be in accounts receivable or payable, awaiting payment by a customer or the company to its suppliers, or it could be in assets, perhaps a bank account in a foreign currency or a fixed asset purchased in a foreign currency.
NetSuite will hold a sterling value against each outstanding foreign currency transaction which from time to time should be re-valued. It is recommended that such re-valuations take place before a period close and further strongly recommended that period closure be used via enabling of the Accounting Periods feature in order to effectively use foreign currency features.
If periods are not closed such re-valuation will affect foreign currency transactions from what the business considers closed ‘earlier’ periods even though NetSuite still considers the periods open.
Common exchange rates across the business or vary by transaction
NetSuite allows the use of one exchange rate across all transactions or to enter a rate for individual (or selected) transactions.
When a new transaction is entered there is a choice of using the one ‘standard’ rate or entering a particular rate. When the re-valuation process occurs (see above) the company can decide whether to re-value all transaction types.
For example, a company may decide to use a different rate for purchases than for all other balances. In such circumstances when entering a new purchase the company would manually enter the rate. Then when re-valuing foreign currency (possibly at the end of the period) they would select account types other than Accounts Payable. Optionally the company could manually update the Accounts Payable transactions to common exchange rates before period close.
Using one exchange rate across all transactions means that the latest rate is used when entering transactions and on re-valuation, the option of All Account Types is selected.
Automatically or manually update common exchange rates
NetSuite offers the choice of an automatic update of exchange rates, manual update or update via importing a currency exchange file.
Automatic update is available via a choice of providers:
- Xignite, which is the default rate provider, and Thomson Reuters. Xignite sources its data from Morningstar and provides the latest bid and ask exchange rates as well as the computed midpoint of these two quotes, which NetSuite uses.
- Thomson Reuters has received awards from Waters Ranking in 2013 for Best Reference Data Provider and Best Low-Latency Data Feed Provider. This rate provider offers real-time, current market rates.
Manual update is available either when a decision is made (perhaps daily or weekly) to update the recorded exchange rate or when a transaction is entered with a manually entered exchange rate. At that point of time NetSuite allows for the update of the common exchange rate by updating the currency record.
There is no restriction on the number of currencies that NetSuite supports and further more NetSuite allows the use of more than one currency for any customer or vendor.
Fluctuations in Exchange rates
NetSuite automatically calculates realised and unrealised gains and losses.
|Realised Gain/Loss||Realised gains and losses resulting from payment application|
|Unrealised Gain/Loss||Unrealised gains and losses resulting from month-end open balance revaluation|
|Unrealised Matching Gain/Loss||Matching unrealised gains and losses from revenue commitments and funds deposited|
This type of gain or loss is initiated internally during certain foreign currency transactions such as when a customer payment is deposited into bank. NetSuite creates a gain or loss as part of the bank deposit, regardless of the dates of the customer payment and bank deposit.