Question

FTED Co, a UAE firm exports inventory to UK on December 1 year 1 for 15,000 pounds. According to the contract payment will be made in British pounds.

Payment in British pounds was made on February 1, Year 2.

FTED co closes books and prepares financial statements on Dec 31, Year 1.

required: prepare all journal entries related to the foreign currency transaction assuming the exchange rates below:

Date AED per pound

1/12/Y1 5.035

31/12/Y1 4.934

1/2/Y2 5.085

Answer 1

Answer:

In the Bokks of FTED Co.

Journal (Amounts in Pounds)

On Export sales FTED will record sales as on the date of transaction and at the end of the year the amount will be shown as receivable from debtors under current assets in the financials

Dec 1 Debtors A/c Dr 75525 (15000*5.035)

To Sales A/c 75525

(being goods sold)

On recipt of payment from the debtors -

Feb 1 Bank A/c Dr 76275 (15000*5.085)

To Debtors A/c 75525

To Profit and Loss A/c (Gain) 750

(being amount received)

The difference between the exchange rate can be recorded as foreign exchange gain/loss as the case may be.