This special topic will take you step-by-step as you create and pay your first multicurrency voucher in Accounts Payable. (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 the Accounts Payable 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 Currency - This is the currency that your vendor used on the invoice you received. This currency may or may not be the same as the functional and/or the pay currencies, but is often the same as the pay currency.
Pay Currency - This is the currency in which your vendor is expecting payment. This currency may or may not be the same as the functional and/or the transaction currency, but is usually the same as the transaction currency.
Determine which currency you will use to pay the invoice. For this example, we will assume:
You have a functional currency of United States Dollars;
You have received an invoice with a transaction and pay currency of Japanese Yen; and
You have not initialized any portion of Costpoint Multicurrency.
In order to use a selected pay currency, your company must maintain a bank account held in that currency. For this example, your company would need a bank account held in Japanese Yen. 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 choose to display two, one, or no digits to the right of the decimal.
Use the Currency Status 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 want to 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 at least one and 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. 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 Payable 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 transaction currency. Even though this invoice will be transacted and paid 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 your 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 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 Accounts Payable transaction. 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. Remember, Accounts Payable transactions are "translated" from transaction to functional currency, then from functional to pay currency. Therefore, for our example, you need to enter rates from Yen to USDollars and then USDollars to Yen.
Your company's policy should determine whether you will 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 the Maintain Exchange Rates by Date screen or Maintain Exchange Rates by Period screen and use Find or Query to search for the rate group you created in the fourth step. Complete the table with the Yen to USDollar rate.
Enter your voucher as usual in the Enter A/P Vouchers screen in Costpoint Accounts Payable. Access the Exchange Rates subtask to select the Transaction and Pay currencies (Yen for this example). Before posting the voucher, open the Currency Line Info subtask and review each line of the voucher. You will see an item-by-item comparison of your transaction, pay, and functional amounts.
Run the Update Open A/P Exchange Rates process. If this process is not run between the A/P Voucher posting process and the voucher selection process (the Edit Payment Status by Vendor or Edit Payment Status by A/P Account screens in Costpoint Accounts Payable), no exchange gains or losses will be recorded in Costpoint.
Pay your voucher as usual, remembering to use your Yen bank account to print the check.
At the end of the fiscal period, after running the Update Open A/R Exchange Rates screen, run the Compute/Post Unrealized Gains/Losses screen. Since this screen includes all multicurrency transactions, please run this screen only after you have completed all Accounts Payable, purchase Order, Billing, and Accounts Receivable transactions for the fiscal period.