Eliminations (different currencies)

Overview

If the companies involved differ in base currency, you need to take one additional step when eliminating inter-company transactions. This step involves accounting for the difference in the inter-company transactions that arise from currency fluctuations.

Basics

When multiple entities record intercompany transactions in different currencies, later converted to a unified currency in Francis using updated exchange rates, differences in amounts may arise due to fluctuating rates.

You must create rows to account for exchange rate fluctuations to eliminate these amounts. Note that accounting frameworks like IFRS and GAAP provide specific rules on where these fluctuations should be recorded.

In the video above, we walk you through the simple setup process, allowing you to decide where to allocate the effects of fluctuating currencies.

The suggested approach, which involves calculating the residual between the two amounts, assumes that all differences arise solely from exchange rate fluctuations. However, if the rows do not inherently include the same items - e.g., due to bookkeeping errors or using one account for multiple purposes - you risk over-allocating a discrepancy to the currency adjustment.