Example Balance Sheet Revaluation

Suppose that at the end of the second period of the year, you have the following for your accounts payable account:

• Settled foreign currency transactions for the year with a total original value in your functional currency of 180,000
• Unsettled foreign currency transactions for the year with a total original value in your functional currency of 4,000

In addition, you have a cash account with foreign currency transactions for the year with a total original value of 25,000, based on the exchange rates that applied on the transaction dates.

When you run the revaluation process, the following occurs:

• Because of earlier favorable exchange rates that applied on the voucher payment dates, the revaluation determines that the total amount of the settled AP transactions in your functional currency is 172,000 (180,000 originally).
• Because of an unfavorable shift in rates as of the revaluation date at the end of the second period, the revaluation determines that the total amount of the unsettled AP transactions is 4,200 (4,000 originally).
• Because of an unfavorable shift in rates as of the revaluation date, the revaluation determines that the total net amount of the cash transactions for the year in the functional currency is only 23,750 (25,000 originally).

The revaluation results in a 7,800 reduction in the accounts payable balance and a 1,250 reduction in the cash balance, a net gain for your firm of 6,550. As part of the revaluation process, Costpoint creates the following adjusting journal entry for the second period:

Account	Debit	Credit
Accounts Payable	7,800
Cash		1,250
OCI Equity		6,550

The process also creates this adjusting journal entry for the third period to reverse the entry above:

Account	Debit	Credit
Accounts Payable		7,800
Cash	1,250
OCI Equity	6,550