When a business undertakes export trade with overseas customers and receives payment in a foreign currency it needs to try and protect itself from fluctuations in the exchange rate. One method of achieving this is to sell the foreign currency using a foreign exchange forward contract.
When a business trades overseas either importing from suppliers or exporting to customers, the transactions are normally conducted in a foreign currency. Since the business reports in a different currency it must reflect any exchange gain or loss when accounting for foreign currency transactions.
The accruals and cash basis of accounting are two different methods of preparing financial statements. A business can calculate information relating to cash receipts and payments from it’s accrual based accounting system using accrual to cash conversion formulas.
The cash and accruals basis of accounting are two different methods of preparing financial statements. The conversion from cash basis to accrual basis can be carried out using cash to accrual conversion formulas.
The accrued and deferred income and expenditure journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accrual and deferral transactions.
In each case the journal entries show the debit and credit account together with a brief narrative.