Currency translation difference in Returns, Allowance and Warranty

**Bai Yihao** · 10-19-2009 12:29 PM

Hi all,

I'm doing an introductory accounting module in my undergraduate course and for a project we're supposed to analyse a company's financial report.

My question here is that what exactly is Currency translation difference?

How does it affect various elements in the various statements for example its affects on Returns, Allowance and Warranty for a merchandise company?

When do i credit or debit?

From my priliminary search i found this definition which wasnt of much help but gives a sense that currency translation difference arises due to accounts being held in foreign currency and an adjust needs to be made due to the currency fluctuation.

Currency transaction risk occurs because the company has transactions denominated in a foreign currency and these transactions must be restated into dollar equivalents before they can be recorded. Gains or losses are recognized when a payment is made or at any intervening balance sheet date.

http://www.journalofaccountancy.com/...ionAdjustments

**yanchutz** · 12-17-2009 09:51 PM

In the IFRS, currency translation difference is equivalent to a component of the Statement of Comprehensive Income called "Foreign Currency Translation Adjustment" - its either a gain or a loss (there are also other names used). This adjustment is due to the continual fluctuations of the foreign exchange rates. Of course, it is arbitrary whether this would be a debit or credit because fluctuations in the foreign exchange could either cause a revenue or an expense. Its "partner" in the journal entry is called: "Unrealized Gain (or Loss) on Foreign Currency Translation Adjustments" which is part of the Equity section of the Balance Sheet. It also depends when and how often you update your foreign currencies, that's when the adjustment arises.