When the exchange rate changes, any invoices you hold in that currency will have a different value as a result of the change. Thus if I have invoiced someone for 1,000 Euros, it is worth $2,000 at an exchange rate of $1.00 = 0.5 Euros. If the rate changes so that $1.00 = 0.55 Euros, my 1,000 Euro invoice is now only worth $1,818.18. I have in effect made a loss of $181.82. This is termed an unrealised loss (or gain, if it went the other way).
The same thing would happen if I had 1,000 Euros stashed in a bank account. In this case it is termed a realised loss.
When you change the exchange rate in MoneyWorks, a journal is automatically created to account for the unrealised and realised gains/losses. If you change the rate in a prior period, several journals may be created.
When a foreign currency invoice is paid, the accumulated unrealised Gain/Loss on the invoice brought about by movements in the exchange rate is transferred to a Realised Gain/Loss. This happens automatically.
Contra-ing invoices: Foreign currency invoices and credit notes can be contra-ed in the normal manner. Because of exchange rate changes you might not be contra-ing invoices of equal value in the base currency—such differences are treated as realised gains/losses.
Write-offs: When a foreign currency invoice is written off, an adjustment is made to counter any unrealised gains recorded against the invoice.
Overpayments: Overpayments in foreign currencies are not allowed. Instead enter a debit note and a credit note pair, and assign the overpayment to the debit note.
Tip: To see the Unrealised Gains/Losses at a point in time, use the Unrealised Gains and Losses report.
Multi-currencies: Behind the Scenes
Although deceptively simple looking, multi-currency is in fact fiendishly complicated. For the enthusiasts, the following section explains the implementation in MoneyWorks.