Balance Sheet Revaluation

Balance sheet revaluation is the process of adjusting the balances of balance sheet accounts to reflect fluctuations in currency exchange rates, so that you can disclose the resulting gains or losses on your financial statements.

Firms that process transactions in currencies other than their functional currency typically perform revaluations at the end of each period for accounts for which the account balance is made up—all or in part—by foreign currency transactions. For example, a firm could purchase goods and services from a vendor in a foreign currency or bill a client in a foreign currency. A firm could also maintain a cash account in a currency other than its functional currency.

Costpoint’s Create Revaluation Entry process enables you to comply with GAAP standards for account balance revaluation. When you run the Create Revaluation Entry process, Costpoint does the following:

• For each account for which foreign currency transactions exist for the fiscal year, the process calculates a year-to-date total amount for those transactions in the functional currency, based on the original currency exchange rates. It includes both settled transactions and unsettled transactions in these calculations. The functional currency amounts used to calculate the year-to-date totals are those stored when the transactions were entered and are based on the exchange rates that applied on the transaction dates.
• The process also calculates a second year-to-date total functional currency amount for each account for foreign currency transactions, based on updated currency exchange rates. For settled transactions, the functional currency amount is based on the exchange rate that applied on the date the transaction was settled. For unsettled transactions, the amount is based on the exchange rate that applied on the end date of the accounting period for which you run the revaluation process.
• For each account, the revaluation process then calculates the difference between the first functional currency total, based on the original exchange rates, and the second total, based on the updated exchange rates.
• The process creates an adjusting journal entry that adjusts each of the account balances by the amount of the variance between the two year-to-date totals. The offsetting entry for any overall gain or loss for the processed accounts is to the stockholder equity account for other comprehensive income (OCI) that you specify on the Configure General Ledger Settings screen.
• The process also creates a second adjusting journal entry for the next accounting period, which reverses this journal entry.