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| Alesinloye Funke from Nigeria |
In preparing Bank Reconciliation Statement for an account based in foreign currency but translated in Naira in the Financial statement and for transaction purposes the foreign currencies are purchased from black market, how do you reconcile. What rate do you use to translate your Bank closing balance at the end of the month?
Also if there are no transactions in a particular period, from the scenario stated above,what rate do you use to translate the existing bank closing balance?
Also if there are no transactions in a particular period, from the scenario stated above,what rate do you use to translate the existing bank closing balance?
Then how do you treat this in cash flow analysis?"
Answer { Given 8/27/2011 - 10:50 P.M}
Alesinloye Funke! First of all it is not good to get foreign currency from black market. As per accounting rule, accounting should not use for illegal purpose. OK, I deem, it is just example. Suppose, your company buys some advance hardware but for this, you need for this purpose, your company exchanged own currency into USA Dollar. It may be costly because this is illegal market. Suppose, you bought 1-1-2011 and payment was done in 30-3-2011. Now, if there is fluctuation in the currency rate, then you may be loss or gain in Forex. You can reconcile it by checking of bank statement, that is not any difficult task.
"What rate do you use to translate your Bank closing balance at the end of the month?" I think, you want to know if there is gain or loss at payment date, what will be its re-translate rate in your own currency? It depends on you, when you will give this, that day rate will be applicable.
What will its effect on cash flow analysis will be dependent on its nature of expense. If it is operating expenses, we will check its effect on operating cash flow otherwise we will check its effect on financial or investment.
