13/08/2013
Using the QuickBooks multicurrency feature
All Hail Multicurrency
Intuit QuickBooks 2009 has come out with a dynamite multicurrency function, available in most Windows versions, that truly exceeds my expectations. Not only does it handle all the currencies in the world, it can handle new ones, and it can track historical exchange rates.
My editor wanted me to call this article “Multicurrency Made Easy,” and it’s easier than in other applications I’ve seen, including the Canadian version of QuickBooks from a year back. [Note 2] But multicurrency is easy only once you learn how it works. So at first, it helps to take things slow as we walk through its features.
Best Practices for Getting Started with Multicurrency
To learn more about multicurrency, choose an existing company file for practice, but be sure to back it up first.
The reason? The ability to track multiple currencies is not available in a company file until you turn it on. But once you turn it on, you can’t turn it off.
Then, signed in as the Admin user, select
Preferences > Multiple Currencies > Company Preferences
and choose the radio button next to Yes, I use more than one currency. Then you will be asked to choose a Home currency. In most cases, you will choose the U.S. dollar, since that is the currency in which you are reporting financials to governing bodies. (See Figure 1.)
Figure 1: Turning on Multiple Currencies
Currency List
After multiple currencies are enabled, some interesting things happen. Firstly, there is a new list (under the menu item “Lists”) called “Currency List” as shown in Figure 2.
Figure 2: Accessing the Currency List using the Lists Menu
The currency list can also be accessed by selecting Company > Manage Currency > Currency List (Figure 3).
Figure 3: Accessing the Currency List Using the Company Menu
All the world’s currencies are on this list, and most start out as inactive. You can always add new currencies, such as would have been the case with the creation of the Euro in 2002. Rather than delete any currencies, it is wise just to make the unnecessary ones inactive and display only those you wish to use. (See Figure 4.)
Figure 4: Currency List Showing Inactive Currencies
To a certain extent, currencies on the currency list can be edited, mostly with respect to how they are displayed. In each currency’s profile, there is a historical list of currencies that were entered manually in the company file by the user for certain transaction or were downloaded automatically into QuickBooks.
How Are Current Exchange Rates Updated?
To stay current on exchange rates requires manual steps and is not automatic. Current exchange rates must be downloaded by the user (and it can be done in Multi-User Mode if desired). The rates are brought over seamlessly from Wall Street On Demand, but there is no need to visit the site; it is all done within QuickBooks, as long as there is an internet connection.
Note: Only the current day’s exchange rate can be downloaded as a default. If a certain day’s rate was not downloaded on that day, it can be entered manually by editing the currency in the Currency List and entering a rate and an “as of date” in the grid to the right of the monthly calendar. Previously downloaded or manually entered rates are kept for each currency. This is very valuable for historical transaction entry. Also, exchange rates can handle up to 10 decimal places.
Transactions in foreign currencies are date-driven. Therefore, an invoice to a Canadian customer dated August 31 will pick up the latest exchange rate in the Canadian dollar currency profile that was effective August 31 or earlier. In the example below (see Figure 5), there was no August 31 exchange rate. The latest exchange rate in the Canadian dollar profile was that of August 15, at 1.012 USD per Canadian dollar. Therefore, an invoice to a Canadian customer dated August 31 would pick up the August 15 rate of 1.012. The exchange rate can be overwritten on any individual transaction.
Figure 5: Currencies Can Be Edited: Historical Exchange Rates that Were Manually Entered or Downloaded Are Saved
Also, as mentioned above, the Canadian dollar profile can be edited to add an August 31 exchange rate that will be the default for any future transactions dated August 31. Also, exchange rates already in the history can be edited so that the newly edited rates become the default rates.
Downloading Current Rate. As mentioned above, downloading exchange rates must be done by the user; it is not done automatically. To download the current day’s exchange rates for any active currencies on the Currency List:
• Select Company > Manage Currency > Download Latest Exchange Rates
Or
• Select Lists > Currency List > Activities button > Download Latest Exchange Rates
Best Practice: It’s a good idea to download the rates daily.
Effect of Multicurrency on Other Lists
Other QuickBooks lists become affected immediately upon turning on multiple currencies. All previously existing names on the Vendor List and Customer List automatically are assigned the home currency. All previously existing accounts on the Chart of Accounts are assigned the home currency as well. When opening the Customer Center, Vendor Center, or the Chart of Accounts, all names which existed prior to turning on multiple currencies will have the home currency as their currencies. A new column will appear in each of those lists for the currency. Each list can be sorted by currency by clicking on the Currency header at the top of the currency column. By clicking on the Currency header a second time, the list is sorted backwards by currency. (See Figure 6.)
Figure 6: Customer Center, Vendor Center, and Chart of Accounts. Note New Column in Each for Currency
What about new vendors and customers after multiple currencies have been turned on? Any time a new vendor or customer is created, the user is prompted to assign a currency. (See Figure 7.)
Figure 7: Field for Specifying a New Customer’s Currency When Adding a Customer to the Customer Center
This also happens when adding a new customer “on the fly” in a sales transaction or when adding a new vendor “on the fly” in a purchase transaction. (See Figure 8.)
Figure 8: Pop-up Window for Adding a New Customer (with a Currency Field) When Putting a New Customer Name in a Sale Transaction
When adding a new customer with a currency that has not been used by any previous customer, QuickBooks automatically creates an Accounts Receivable account with the same currency.
Similarly, when adding a new vendor with a currency that has not been used by any previous vendor, QuickBooks automatically creates an Accounts Payable account with the same currency.
Similar rules apply to adding new accounts to the Chart of Accounts. When adding a new account by selecting the Account button at the bottom of the Chart of Accounts and selecting New, the currency can be chosen as long as the new account is one of the following types: Bank, Credit Card, Accounts Receivable, or Accounts Payable. The same is true if the new account is being added “on the fly” by entering a new account name or account number into a transaction. (See Figure 9.)
Figure 9: New Account; Specifying the Currency if it’s a Bank, Credit Card, A/R or A/P Account
How to Deal with Foreign Selling Prices
One cool feature of multicurrency is the ability to invoice foreign customers for items priced in their currency. What does this mean? It means that users of multicurrency can have a separate price list for all their items for any or all of the currencies in which they sell. Without this ability, selling prices would appear on invoices to foreign customers as the foreign currency equivalent of the selling price in the item list, at that day’s exchange rate. In other words, the foreign selling prices would fluctuate with the varying exchange rate between the foreign currency and the home currency.
Most companies that sell in foreign currency want their customers to publish a definite selling price that will be unchanged from day to day, unless and until the entire price list has changed (perhaps once a season or once a year, but with far less frequency than fluctuating foreign exchange). See Figure 10.
Figure 10: The Selling Price of an Item in the Home Currency
So how does QuickBooks with multicurrency achieve this? The answer is through price levels, with which many of you are already familiar.
Foreign prices for items can be set up to be independent of varying exchange rates by using price levels and assigning the correct price level to any customer. More than one CDN Price Level [Note 2] can be created so that different CDN customers have different $CDN price levels (examples: Wholesale CDN and Retail CDN).
As with the traditional use of Price Levels, each price per item can be entered or edited separately, or the Mark All box can be checked for blanket calculations based on the home currency price, cost, or previous custom (i.e. foreign) price, with rounding functions as well. These rounding functions are available ready-made in a drop-down box or they can be user-defined. (See Figures 11 and 12.)
Figure 11: Foreign Price List using Price Levels
Figure 12: How to create, edit or update foreign selling prices using Price Levels
Each foreign customer can be assigned a default price level, as in the more traditional use of QuickBooks price levels. In Figure 13 below, the Canadian customer Fish, Chips & Hockey has already been assigned the currency Canadian Dollar. The customer can now be assured a non-fluctuating price list by the designation of the price level CDN Price in the Additional Info tab.
As with the traditional use of default price levels for customers, other prices for a particular currency are available from a drop-down box in the invoice rate column.
Figure 13: Designation of Non-Fluctuating Price Level to a Foreign Customer Using Price Levels
How Multicurrency Works Behind the Scenes
Each transaction in a foreign currency (indicated by the use of a foreign vendor, foreign customer, or foreign account on the chart of accounts) has two faces:
• The on-screen face, such as an invoice to a foreign customer, denominated in the foreign currency, showing the value in the home currency at the prevailing exchange rate.
• The behind-the-scenes face, which indicates how the general ledger (which is always in the home currency) is affected in terms of debits and credits.
Note: External, printed invoices such as the example below have a third face:
• The printed or Print Preview face, which the customer sees, showing no evidence of the home currency or exchange rate.
In Figure 14 we have an on-screen invoice for $1,000 CDN to our Canadian customer Fish, Chips & Hockey.
Figure 14: Invoice for Canadian Customer
This on-screen invoice to the Canadian customer shows the exchange rate, the foreign amount of the invoice and the home currency value. In contrast, the customer does not see home currency value – as demonstrated at the end of Part I, in which Figure 17 shows the Print Preview of the printed invoice.
The behind-the-scenes face of the transaction is the Transaction Journal report. The default format of the Transaction Journal below has been modified to get rid of unnecessary columns and to add columns for Foreign Amount, Currency, and Exchange Rate, which are new options in a multicurrency file.
In Figure 15, the modified Transaction Journal for this invoice shows what went on behind the scenes in the home currency, as well as how it was translated for the outside world in the foreign amount. (Ignore Inventory, Cost of Goods Sold, and Sales Tax Payable lines in this entry.)
Figure 15: Transaction Journal of Foreign Invoice Modified to Show Foreign Amount, Currency, and Exchange Rate
For Reports. These columns can be added on any detail report by selecting Modify Report > Display and clicking a checkmark next to these extra column headers, as shown in Figure 16.
Figure 16: How to Modify the Transaction Journal Report to Show Three New Columns Related to Multicurrency
Finally, Figure 17 shows the third face of the Invoice – the Print Preview face –which the customer sees as denominated only in their own currency.
Figure 17: Print Preview of Foreign Currency Invoice
Look for Part Two
So far we have covered some of the basic dimensions of the new multicurrency feature. Next we turn to calculating exchange gains and losses, various issues in multicurrency banking, and working with multicurrency reports.
Editor’s Note: We will be publishing Part Two soon. Look for it in your March 2009 Intuit ProConnection Newsletter.
Notes
1. The multicurrency features is available in the following Windows versions QuickBooks 2009: Pro, Premier (all editions) and the related Enterprise Solutions 9.0.
2. For this article we will use the common print abbreviations CDN and $CDN for Canadian and Canadian dollars. Note that QuickBooks (as in Figure XX) uses CAN instead of CDN.
