Recording foreign exchange transactions when importing stock from an overseas supplier.
Overview
When you order goods from an overseas supplier, you must record the transaction in that overseas currency as you will pay your supplier in their currency and you also want to record the value of stock in your local currency for your own financial records. Therefore, you need to record a rate of exchange between the two currencies. You can use the same rate for a month, or if you have a large number of transactions, you can update this rate more frequently if you wish.
When goods are imported, there may be additional freight charges such as Customs charges, duty and GST on these charges. These additional items affect the cost of your stock items. Therefore to give you a true picture of the cost of these stock items, these additional costs are apportioned to the costs of the items ordered and then the Branch average cost of the various items is updated. Note that GST is not included in the costs to be apportioned to the Stock average cost, as you can claim back the GST.
There may be rate of exchange differences between the time you receive the invoice and the time you make the payment. To read about how to manage Rate of exchange adjustments, refer to Managing Exchange Rate Differences.
To read about setting up the fields you need, and updating the rate of exchange, please refer to Set up for Foreign Currency transactions to record purchasing imported stock.
Overview of The Workflow
When you create a Sales Order for your customer, you may need to order the goods from an overseas Supplier. Your overseas Supplier may require payment in advance in their own currency.
The workflow
- Create a Purchase Order to order the goods from your overseas Supplier; e.g. you order goods to the value of USD$100,000 from your US Supplier.
- Payment in Advance. Your overseas Supplier may require payment in advance in their own currency. You would usually expect some documentation from the Supplier, perhaps in the form of an order form, for payment in their local currency.
NOTE: This document is not the invoice - do not enter it as an invoice at this stage as we need to enter that later when we can also add the additional charges for import duties, freight, etc. These extra costs must be entered together with the invoice to allow these items to be included in the calculation to update the Branch average costs.
E.g. You pay the Supplier USD$100,000 through the Cashbook. The amount is converted to your local currency, e.g. NZD$161,000, assuming a rate of exchange of 0.61. You pay in NZD, and the amount is posted to your Suppliers account in your Payables module when you import the Cash book transactions for the next day. The Supplier's account is now in debit.
3. Receive Goods in. Payables > Receive Goods in. When the goods arrive, we record them in as Received In. This creates the delivery note that we need to approve the invoice.
4. Approve the Payable Invoice. When you approve the invoice, the amount will be in the foreign currency, and you need to show it as NZD for your Supplier account and cost of goods purchased. Also, at this stage, you can add any additional charges for freight, GST, customs duty, etc. These charges are likely to be on one or more separate invoice/s, e.g. from your customs broker or NZ Customs. These additional fees (excluding GST that you can claim back in your GST return), will be added to the total amount of the invoice, and apportioned across all items on the invoice on a pro rata basis, so that the Branch average cost of all items purchased is updated.
Add a Purchase Order in the Foreign Currency
Add a Purchase Order for the stock item from your overseas Supplier.
- Start at Payables > Purchase Orders.
- Add your Purchase Order.
In this example, we have added a Purchase Order for 100 Widgets at US$1000 each from our US Supplier, a total of US$100.000.
Pay your Supplier in Advance
Add Cash Book Transaction
When your Supplier requires payment in advance, you can enter this transaction in the Cash Book.
- Click to the Cash Book > Cash Book transactions menu.
- Click Create New Transaction.
- Cash book bank account: Select your bank account that you are making the payment from.
- Transaction date: Enter today's date.
- Amount: Enter the amount in the local currency equivalent. In this example it is NZ$-161,000.00, (a negative amount for a payment).
- Click Confirm.
Analyse Cash Book Transaction
The next day, the transaction appears on your statement when you Import Bank Transactions. Now you can post it to your foreign Supplier Account when you Quick analyse the transactions for the day.
- Click to the Cash Book > Quick analyse transactions menu.
- Select the item and double click it to open the transaction.
In the Edit Cash Book Transaction Analysis screen > Account details section:
- Account: Select the Payable Account.
- Account Transaction type: This should default to Payment Type.
In the Amounts section:
- Tax: Select the code for No Tax.
- Cash book amount: Enter the Amount of the transaction in your local currency.
- Other currency amount: Enter the amount of the transaction in the foreign currency.
- Click Save and close.
Receive Goods In
When the goods arrive with the invoice you can now Receive In the Stock items and create the delivery note.
- From the Payables > Receive Goods in menu:
- Purchase order: Enter or select your Purchase Order number.
- Supplier delivery note number: Enter the Supplier's delivery note number.
- Received Goods In: In the section below the blue bar, add the number of items actually received for each line of your Purchase Order.
- Click Save.
Approve Invoice and Add Additional Costs
Approve the Invoice
First, you can approve the main invoice for the purchased stock.
- Start at Payables > Approve Invoices.
In the Purchase order details tab:
- Purchase order: Search for and select the Purchase Order for this invoice, or search in the Supplier (payable account) field. The Purchase Order details will appear in the top section on the left-hand side.
On the right-hand side of the screen:
-
Supplier invoice #: Enter the Supplier's invoice number.
-
Supplier invoice date: Enter the invoice date.
-
Supplier invoice total: Enter the invoice total in the foreign currency. This will be converted to your local currency according to the rate of exchange you have set up.
Don't click Approve yet, as you can now enter additional invoices.
- Remain in this screen to add the Additional Invoices.
Add Additional Invoices
Now you can add the additional charges for freight, duty and GST/tax.
- Click to the Additional invoices tab.
Here you can add one or more additional invoices for other charges relating to this purchase.
- Invoice date: Enter the invoice date.
- Due date: Enter the due date for the invoice.
- Invoice #: Enter the invoice number.
- Supplier (payable account): Select the Supplier account.
- Inward freight excl: Enter the new freight amount, if any.
- Inward freight tax: Enter the tax amount on freight. (Note: GST applies to internal freight only, not overseas freight).
- Customs tax amount: Enter the Customs tax amount. This is usually the GST on imported goods.
- Click Add additional invoice.
Repeat for any other additional charges. You can add as many additional invoices as required. This may depend on whether you pay freight and customs to the same Supplier or to separate suppliers.
The invoice/s now appear in the lower section of the screen:
- Click Approve.
This will update your value of stock in your local currency, and it will include the costs of freight and duty (but not GST/tax that is re-claimable) in the Branch average cost of the goods. Where you have multiple items on the invoice, the additional costs will be spread over all items on a pro rata basis.
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