Re: Proposal for handling different currencies

[Bob Gustafson <..hidden..>]

On Fri, 2007-11-30 at 20:24 -0800, Chris Travers wrote:
> Hi Bob;
> 
> On Nov 30, 2007 7:39 PM, Bob Gustafson <..hidden..> wrote:
>         This example is prompted by the need to:
>         
>         1) Handle accounting in one currency (EUR), pay bills, receive
>         rent,
>         etc.
>         2) Make investments from one currency (USD) to the other (EUR)
>         3) Pay taxes on profits (if any) in USD. 
>         
>         The Chicken Farm example shows two methods of getting the
>         necessary view
>         for paying taxes (item 3 above).
> 
> I think you detail the problem quite will.  Here is a far simpler (and
> more common) example. 
> 
> A Canadian user of LedgerSMB opens a USD account and deposits $1000
> CAD into the account.  Once the exchange rate and fees are taken out,
> one cannot just track the amount in the account in CAD bacause the
> exchange rate varies frequently.  Instead the amount has to "float" in
> USD relative to the CAD books.  At the same time, the books always
> have to balance in CAD. 
> 
> Suppose for argument's sake the CAD to USD rate is 1:1 with no
> transaction fees when the account is opened.  The user no longer has
> $1000 CAD, but now has $1000 USD.  However, when we want to check the
> trial balance it will show as $1000 CAD.  Ok, now suppose that the
> individual pays me $200 USD for services (now having $800 USD in the
> account).  Suppose that the USD is still doing badly and that the rate
> is now 1.03 CAD = 1 USD.  Ok, now we have to record the transaction
> correctly so we know how much money is in the accont ($800 USD) but we
> also have to record the transaction so we know how much was paid for
> the expense ($206 CAD).  Currently this is done by recording the $206
> and using a view approach to get it back to $200 (from $1000 = $800).
> I propose that we record authoritatively how much money was withdrawn
> in the source currency as well for auditing purposes. 
> 
> The major pieces of this puzzle we are lacking are not that major.  We
> need:
> 1)  A way of enforcing a master currency on an account.
> 2)  Better reporting of things like current balances.
> 
> Current balance reporting has a number of other challenges associated
> which I think we need to tackle (especially for the midsize businesses
> in our userbase) but that is another discussion. 
> 
> Best Wishes,
> Chris Travers
> 

Hi Chris

First off, I am not an accountant. I view things through the eyes of an
engineer.

With my bent view, I look at your sentence:

"At the same time, the books always have to balance in CAD."

I agree that balanced books are a good thing, but if you don't do any
adjusting for currency fluctuations, the numbers don't give you (as
manager) a good view.

If you deposit the CAD in a USD account at 1:1 exchange rate and then
the USD drops to 0.8, you don't have 1000 CAD in that account anymore.
You didn't make any recordable (in the accounting sense) transactions,
but your net worth has dropped by 200 CAD.

How do you get a 'correct' view.

Best regards

Bob G