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At the date a foreign currency transaction occurs, each asset, liability, revenue, expense, gain, or loss arising from the transaction is recorded in the functional currency of the recording entity using the exchange rate in effect at that date.

Types of Exchange Rate Regimes. In reality, there are only two types of exchange rate regimes, which are possible viz. the fixed regime and the floating regime. However, these two systems have several variations within them.

For accounting purposes, exchange rate differences are typically recorded as other income and expenses in the ledger account, such as ledger account 91 - Other income and expenses. For the purpose of income tax accounting, exchange rate differences are considered non-operational income and expenses.

The effect of a change in the functional currency is accounted for prospectively. Therefore, an entity translates all items into the new functional currency using the exchange rate at the date of change. The resulting translated amounts for non-monetary items are treated as their historical cost.

There are four main types of exchange rate regimes: freely floating, fixed, pegged (also known as adjustable peg, crawling peg, basket peg, or target zone or bands ), and managed float.

One can classify currencies into three monetary systems: fiat money, commodity money, and representative money, depending on what guarantees a currency's value (the economy at large vs. the government's physical metal reserves).

All elements of financial statements shall be translated by using a current exchange rate as follows: For assets and liabilities, the exchange rate at the balance sheet date shall be used. For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used.

In other words, purchase or sale is recorded in the books of accounts at the exchange rate prevailing at the date of transaction and adjustments are not made for any change in exchange rates. These changes in exchange rates on different dates are treated as expenses and charged to loss on foreign exchange account.

At the date a foreign currency transaction occurs, each asset, liability, revenue, expense, gain, or loss arising from the transaction is recorded in the functional currency of the recording entity using the exchange rate in effect at that date.

Types of Exchange Rate Regimes. In reality, there are only two types of exchange rate regimes, which are possible viz. the fixed regime and the floating regime. However, these two systems have several variations within them.

For accounting purposes, exchange rate differences are typically recorded as other income and expenses in the ledger account, such as ledger account 91 - Other income and expenses. For the purpose of income tax accounting, exchange rate differences are considered non-operational income and expenses.

The effect of a change in the functional currency is accounted for prospectively. Therefore, an entity translates all items into the new functional currency using the exchange rate at the date of change. The resulting translated amounts for non-monetary items are treated as their historical cost.

There are four main types of exchange rate regimes: freely floating, fixed, pegged (also known as adjustable peg, crawling peg, basket peg, or target zone or bands ), and managed float.

One can classify currencies into three monetary systems: fiat money, commodity money, and representative money, depending on what guarantees a currency's value (the economy at large vs. the government's physical metal reserves).

All elements of financial statements shall be translated by using a current exchange rate as follows: For assets and liabilities, the exchange rate at the balance sheet date shall be used. For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used.

In other words, purchase or sale is recorded in the books of accounts at the exchange rate prevailing at the date of transaction and adjustments are not made for any change in exchange rates. These changes in exchange rates on different dates are treated as expenses and charged to loss on foreign exchange account.