International Transactions SALES AND PURCHASES IN FOREIGN CURRENCY

International Transactions SALES AND PURCHASES IN FOREIGN CURRENCY AND CONSOLIDATED FINANCIAL STATEMENTS WITH INTERNATIONAL SUBSIDIARIES

Exchange Rates between Currencies � Markets for the purchase and sale of foreign currencies exist all over the world. In these markets, U. S. dollars can be exchanged for Canadian dollars, British pounds, Japanese yen, Euros, or any other legal currencies. � The price of one currency stated in terms of another currency is called a foreign exchange rate

Sales and Purchases Listed in a Foreign Currency (Purchases are the same) � If the sale terms require payment in a foreign currency a U. S. company must account for the sale and the account receivable using the exchange rate in effect on the transaction date. � Date of Sale: Sale to Mexican company for 10, 000 pesos when the exchange rate is. 0982 on the date of the sale � Date of financial statement: Exchange rate is. 0992 � Date of payment: Exchange rate is. 0975

Consolidated Statements with International Subsidiaries � Preparing consolidated financial statements when the parent company has one or more international subsidiaries. � Example: A U. S based company owns a controlling interest in a Italian subsidiary. The Italian subsidiary will maintain its financial records in euros. Before preparing consolidated financial statements, the US company must translate financial statements of the subsidiary into U. S. dollars. � After this translation is complete, consolidated statements are prepared the same as for domestic subsidiaries. � Procedures for translating an international subsidiary's account balances are dependent on the nature of the subsidiary's operations. This requires the parent company to select appropriate foreign exchange rates and to apply those rates to the foreign subsidiary's account balances.