This special topic will take you step-by-step as you bill your first multicurrency invoice and enter a payment for this invoice. (This example will NOT deal with any Euro currencies.)
Currency is a form of money or bank note that usually differs from country to country. However, a dozen European countries joined to create one common currency, the Euro. (For more information, see Special Topic MU-5, "The Euro.")
For Costpoint Billing and Accounts Receivable functions, Costpoint recognizes the following three currency designations for recording transactions:
Functional Currency - This is the currency that was selected when your company originally installed Costpoint. When your company's financial statements are run, your company's profit is measured as a certain number of these units. Once the functional currency is selected at Costpoint initialization, it should NOT be changed. If you are unsure of your functional currency, see the G/L Settings screen in Costpoint General Ledger.
Transaction/Billing Currency - When preparing invoices, this billing currency will display on your outgoing invoice.
Transaction/Receipt Currency - This is the currency your customer used in payment of the invoice.
Determine which currency you will use to invoice. For this example, we will assume:
You have a functional currency of United States Dollars;
You are creating an invoice with a billing currency of Japanese Yen; and
You have not initialized any portion of Costpoint Multicurrency.
Take the following steps:
Go to the Maintain Currencies screen to select the currencies that will be available for use in Multicurrency. Costpoint has loaded over 150 currency ISO codes into your system. An ISO code is a three-letter abbreviation selected by the International Standards Organization to represent each currency. In addition, 25 of the more frequently used codes are listed, including formal and informal names.
Place your cursor in the Currency ISO Code field and use the Lookup button on the toolbar to select "JPY - Japanese Yen." Follow the instructions for this screen and accept or override the formal and informal names for this currency. In addition, you need to review the four formatting group boxes on this screen to make sure that your transaction currency (Japanese Yen) adheres to the formatting standards of that country (Japan). The Decimal Digits field in the Currency Format group box is the most important. This field determines the length of rounding that will occur when this currency is displayed or printed in Costpoint. Some currencies with a relatively low value, do not show any numbers to the right of the decimal point. You can display two, one, or no digits to the right of the decimal.
Go to the Currency Status screen. Use this screen to activate this currency for use in Costpoint Multicurrency. You do not need to enter an activation or expiration date for this currency in the Currency Status group box. However, if you do enter an activation and expiration date, transactions will be allowed only within those dates. If you enter an activation date or an expiration date (but not both), no transactions will be allowed before the activation or after the expiration date.
Go to the Maintain Exchange Rate Sources screen. Enter one or many sources for your exchange rates, but only one can be the default source. There are dozens of sources where you can obtain exchange rates; you can consult business periodicals (Wall Street Journal, Financial Times) or your financial institution's Internet site. Costpoint supports the upload of digital exchange rate information via the Upload Daily Exchange Rates screen. Most companies select one source and stay with it for all their transactions.
Next, go to the Maintain Exchange Rate Groups screen and create a rate group. This user-created group will link a rate source (already selected in the third step) to a currency relationship (from United States Dollars to Japanese Yen). You can include more than one currency relationship on this screen.
Go to the Multicurrency Settings screen. You usually set up this screen when you initialize Costpoint Multicurrency. If this is your first Accounts Receivable transaction, you may want to double-check this screen's settings. Your company's functional currency (in this example, United States Dollars) will appear in the Functional field in the Currencies group box. The Default Transaction currency should be set for the currency that you most frequently use as your billing and accounts payable currency. Even though this bill will be created and paid by your customer in Japanese Yen, you should not default this box to "JPY" unless most of your foreign currency transactions will occur in Yen.
Select your Default Rate Group (created in the fourth step), but please be careful that the currency relationships you need (for this example, Yen to USDollars and USDollars to Yen) exist in this Default Rate Group.
The settings for overriding rates and computing gains/losses are extremely important. If you select the Allow users to override exchange rates checkbox, users can override the rates entered on the maintenance and rate entry screens. If allowed, this override can occur in the Exchange Rates subtask on screens such as:
The Enter A/P Vouchers screen in Costpoint Accounts Payable (to edit currency of an A/P Voucher)
The Edit Payment Status by Vendor screen in Costpoint Accounts Payable (to edit currency to pay an A/P voucher)
The Edit Customer Product Bills screen in Costpoint Billing (to edit the billing currency)
The Enter Cash Receipts screen in Costpoint Accounts Receivable (to edit a cash receipt)
Unrealized gains and losses will be calculated at each period end but can be posted in one of two ways. The Net Change method will post each period gain and/or loss at period end. The ITD Balance (Inception to Date) method will post the running total of gains and losses while reversing the figure in the following period.
Go to the Multicurrency Accounts screen. Following your company's procedures, assign the gain and loss accounts and orgs. If your company uses Ref 1 and Ref 2 as additional data entry fields, you can assign reference numbers to the gain and loss fields in the Reference No subtask. These settings will determine the posting location of gains and losses on currency transactions.
The next step is to enter the exchange rates for the currencies of your billing and Accounts Receivable transactions. You can maintain currency on a regular schedule (possibly daily or weekly) or enter currency rates on an as-needed basis. Use either the Enter Period Rates screen or the Enter Daily Rates screen.
For billing transactions, rates must exist from the functional currency (USDollars in this example) to the billing currency (Yen in this example).
Accounts Receivable transactions may result in cash receipts in any currency and the receipt currencies are then "translated" to functional currency. Therefore, rates must exist from the receipt currency (Yen in this example) to the functional currency (USDollars in this example).
Your company's policy should determine whether you maintain exchange rates by period or by date. Remember: You can keep rates by BOTH date and period, but Costpoint will first look to daily rates and, if none are available, will default the period rates. (Period rates will default only if the Use period rate, if available checkbox is selected in the Multicurrency Settings screen.) For the most accurate accounting of gains and losses, you should enter the rates for each business day.
Go to either to the Maintain Exchange Rates by Date, Maintain Exchange Rates by Period, or Enter Period Rates screen and use Find or Query to search for the rate group you created in the fourth step. Complete the table with the USDollar to Yen rate.
Enter your bill as usual and using the Exchange Rates subtask in the Edit Billings menu in Costpoint Billing, select Yen for your billing currency. Multicurrency invoicing is available in the Project Product, Customer Product, Standard, Milestone/Percent Complete, and Manual bills. Before posting the bill, open the Currency Line subtask and review each line of the voucher. You will see an item-by-item comparison of your billing and functional amounts. Post the bill.
Before the end of the fiscal period, run the Update Open A/R Exchange Rates process. If this process is not run between the billing posting process and the end-of-period computation of gains and losses, no exchange gains or losses will be recorded in Costpoint.
When payment is received, post as usual. If necessary, use the Exchange Rates subtask on the Enter Cash Receipts screen in Costpoint Accounts Receivable to select the currency received. Remember the currency must exist in the Maintain Currencies screen and the from/to relationships must exist in the Maintain Exchange Rate Groups screen.
After posting cash receipts, run the Compute/Post Unrealized Gains/Losses screen. Since this utility (Compute/Post Unrealized Gains/Losses screen) includes all multicurrency transactions, please schedule the timing of this screen only after you have completed all Accounts Payable, Purchase Order, Billing, and Accounts Receivables transactions for the fiscal period.