Question

How is “functional currency” defined under US GAAP and IFRS?

What are the journal entries for recognition of realized and unrealized foreign currency exchange gain or loss under US GAAP and IFRS?

Answer 1

Answer:

Functional Currency refers to the main currency used by a business or unit of a business. INternational Accounting Standards and U.S. Generally Accepted Accounting Principle provide rules for translation of foreign currency transaction and financial statemets.

As per IFRS

This functional currency is determined by looking at a number of relevant factors. This currency should be the currency in which an entity usually generates and spends cash. Functional currency should be the one in which the business transactions of an entity are normally denominated.

Journal Entry for Gain:

Accounts Payable Dr.

To cash Acc

To Foreign Exchange Gain

For Loss

Cash Acc Dr.

Foreign Exchange loss Acc

To Account receivable