An exchange rate is the cost of buying one kind of currency unit with another kind of currency unit.
Let's say a Canadian dollar (CAD) "costs" 68 U.S. cents (.68 USD). This means the USD to CAD rate is expressed as a .68 exchange rate. A United States dollar "costs" 145 Canadian cents, so the CAD to USD rate is expressed as a 1.45 exchange rate.
The rates entered with the original transaction are compared with the rates used for payment of the voucher, and any difference is a gain or a loss for your company. On large transactions, this can represent substantial amounts of money.
There are numerous sources for exchange rates including newspapers, Internet sites, and update services. All legitimate exchange rates are based on the market close rates of recognized exchange boards. These exchange boards are similar to the stock market.
The advantage to using published rates, even when you are unable to obtain the exact rate, is that they are universally recognized and are easily obtained by any company anywhere in the world.
Once you have set up a currency in Costpoint (using the Maintain Currencies screen), use the Exchange Rates menu in Costpoint Multicurrency to set up and maintain exchange rates.
The first step is to create a name for your exchange rate sources in the Maintain Exchange Rate Sources screen. For flexibility, Costpoint allows more than one rate source.
Then use the Maintain Exchange Rate Groups screen to create a unique combination between the source and the currency To/From relationships. This unique combination is called an Exchange Rate Group. You cannot enter exchange rates into Costpoint unless you have created the To/From currency relationship. Within this exchange rate group, you can limit the rate change allowed when new exchange rates are entered. Your Accounts Payable and Purchase Order employees can use this screen to override the rates that Costpoint automatically creates, based on existing rate information.
In addition, you can use the Multicurrency subtask of the Maintain Vendors screen (in Costpoint Accounts Payable and Purchasing) to restrict, on a vendor basis, use of both the transaction and pay currencies. This can prevent use of the wrong currency for vendors with multicurrency transactions.
You can keep exchange rates on a daily or periodic basis.
Enter daily rates in the Maintain Exchange Rates by Date screen and the Enter Daily Rates screen. Daily rates can be open-ended, that is, the ending date is optional. Once you have entered the starting date, this rate is considered current until you enter an ending date. This allows the same daily rate to be used for one or two weeks. When you use exchange rates in Costpoint, daily rates are the default.
Enter period rates in the Maintain Exchange Rates by Period screen and the Enter Period Rates screen. You can use the period rate only for the pre-defined accounting period determined in the Costpoint General Ledger setup. You can use period rates in two ways: as the period average or the end-of-period. The period average rate is used for the entire accounting period, except the last day. The end-of-period rate is used only on the last day of the selected period. When you use exchange rates in Costpoint, daily rates are the default and period rates are used only if no daily rates exist for the transaction date.
Exchange rates are mainly used in the Exchange Rates subtasks located in several of the Costpoint Accounts Payable and Purchasing screens (Enter POs, Enter A/P Vouchers, etc.). Exchange rates are "copied" from the daily or period rates based on the Rate Date used in this subtask. In addition, Costpoint users can override some exchange rate fields in the Exchange Rates subtask.
By selecting the Freeze Rates checkbox in the Exchange Rates subtask, you can ensure that the rate current on the date of entry into the Costpoint Accounts Payable or Purchasing screen will continue as that transaction's rate through payment of the voucher. This Freeze Rates function cannot be bypassed unless you uncheck the Freeze Rates checkbox before posting the voucher or disable it in one of the Edit Payment Status screens after posting the voucher.
Since none of us can predict the future, all exchange rates are entered in Costpoint after the close of business for that day or that period. So how can you keep your Accounts Payable vouchers' exchange rates current when the vouchers were entered last month?
Before making any payments on the voucher, make sure the "newer" exchange rates have been entered in one of the four exchange rates screens (Maintain Exchange Rates by Date, Enter Daily Rates, Maintain Exchange Rates by Period, Enter Period Rates).
Then run the Update Open A/P Exchange Rates screen so Costpoint will recognize those newer rates for your vouchers.
If you are using the Pay When Paid feature, run the Update Pay When Paid Vouchers screen before running the Update Open A/P Exchange Rates screen.
Depending on the foreign exchange fluctuations between the time you posted the Accounts Payable voucher (or saved the Purchase Order) in Costpoint and the date the item is selected for payment, your company may have a gain or loss on the foreign currency.
When closing a period, you may have vouchers scheduled for payment in the next period. In order to recognize the gain or loss on these payments, Costpoint helps you calculate this amount when closing the period. (Remember, if you selected the Freeze Rates checkbox in the Exchange Rates subtask, no gain or loss will be calculated for this voucher.)
Run the Update Open A/P Exchange Rates screen, then the Compute/Post Unrealized Gains/Losses screen. (If you have vouchers marked as Pay When Paid, run the Update Pay When Paid Voucher History screen in Costpoint Accounts Payable before the Update Open A/P Exchange Rates screen.)
This will post the unrealized gain or loss to the General Ledger. An unrealized gain or loss is the change in value of your vouchers before payment is made. (After either full or partial payment, the gain or loss is realized.) Once gains and losses have been computed, print a Voucher Unrealized Gain/Loss Report to keep for your audit trail.