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Term Definition
Multi-currency system refers to accounting software that enables trading in multiple currencies, which facilitates buying and selling internationally.
In today's global marketplace, companies have a need to do business in foreign and multiple currencies. Many European countries have had to adapt to dealing with the Euro, as well as their domestic currency. Companies with United States customers have also had to handle the dollar, which may lead to them dealing in three or more currencies. United States companies are also faced with the challenge of multiple currencies in the wake of globalization and outsourcing. This requires the creation of foreign currency journals, revaluing and translating foreign currency to domestic rates and reporting in multiple currencies. Without the right accounting software, multi-currency transactions can be highly problematic and a source of much frustration.
Multi-currency systems will facilitate accounting and financial reporting in three key areas:
Multi-Currency transactions
- Ability to transact in other than your accounting currency
- Ability to revalue transactions
- (Bank) Accounts in other than accounting currency
Multi-Currency reporting
- Ability to translate transactions or balances for reporting purposes
Multi-Currency accounting
- Ability to account transactions parallel in different currencies
The ability to transact and revalue multi-currencies is critical. For example, the Euro requires certain precision and rounding rules and countries like France require special handling of rounding differences. You may also need to account for your transaction in multiple currencies, particularly if the translation would result in gains and losses, or you want to eliminate rounding differences that occur with the Euro.
Multi-currency systems can facilitate the recording of revenue and expenses converted from foreign to domestic currency. Exchange rate fluctuations would be automatically tracked showing the appropriate gain or loss. For companies that sell goods and services in foreign companies, a multi-currency system could automatically convert pricing to the customer's currency. Conversely, companies that purchase goods and services from foreign countries would also be able to track what is owed in each currency.
Area of Application
Multi-company Accounting
Project Accounting
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