Multi currency Expenses account setup

ERPNext Accounting
1

I have a multi currency scenario here and I wonder how to set my CoA in the best way.

mainly it’s about expense accounts. The majority of suppliers we are buying from bills and get’s paid in a different currency then my companies default currency. As an example let’s say I have an Expenses > Direct Sales Costs > Materials for manufacturing and I wonder whether I should set this in

A) the main company currency … or
B) one account for each currency that is being used

an example

A) all Material expenses are recorded in one currency (the companies main currency or maybe even the currency the majority of suppliers is being paid in (which is differnent then the main currency), regardless of the actual payment/bill currency

… Expenses / Direct Sales Costs / Materials ($)

vs

B) Material expenses are recorded in a dedicated expense account per currency

… Expenses / Direct Sales Costs / Materials ($)
… Expenses / Direct Sales Costs / Materials (EUR)

scenario B) might result in up to 3 different Expense Accounts for some which seems a little like an overkill…

Does anybody have a similar situation and might want to share some best practices? My goal is to avoid having too many accounts with being able to be as clear as possible (I guess that’s anybodies goal more or less) at the same time.

For example I’d want to be able to find a payment by the payment amount in the currency I paid in (would that be possible whether the related expense account is in a different currency [and the actual amount on the expense account is different due to the exchange it went though])?

2

Hi vrms,

You are right, option B) is overkill. As a side note, in a group with inter-company transactions multiple revenue and expense accounts make sense for the purpose of consolidation.

So it’s option A).

First of all, you set up a supplier and chose the billing currency. Also, I recommend to create one creditor G/L control account for each currency.

Second, when you enter the purchase invoice under that very supplier the system prompts you to either enter a FX rate of your choice or to use the rate provided by the system. The expense will be recorded in your home (main) currency. Definitely all P&L accounts should be in home currency.

As to your other issue of finding payments, may I suggest to search the supplier’s records or bank entries?

Best
York

3

you mention such ‘control accounts’ in your own topic posting as well. To me (not being an accountant obviously) the term ‘control account’ is new. If you don’t mind … can you explain the concept and how to practically use ‘control accounts’ ?

4

Hi vrms,

In bookkeeping buyer number 1, 2, …, n are usually kept in a subledger
separate from the General Ledger. This subledger or module is called
Accounts Receivable (A/R). Likewise, supplier number 1,2, …, n where the
module is called Accounts Payable (A/P).

Somehow the total outstandings due from buyers shown in A/R needs to be
imported into G/L. The G/L account that takes this total in is the “control
account for accounts receivable”. Likewise for suppliers and A/P.

For instance, in ERPNext take a look at module “Buying”, click on
“Supplier”, and choose an existing or create a new supplier. When scrolling
down you’ll see

Default Payable Account

where you enter the account you want the supplier’s balance (as part of
many other outstanding supplier balances) to appear.

Think of A/R and A/P as subledgers of the General Ledger which allows you
to analyze buyers and suppliers handily.

By the way, if there were no subledgers A/R & A/P you

a) would have to create a G/L account for each and every buyer and supplier
or

b) post all buyers into one G/L account (aka Debtors) and suppliers into
one G/L account (aka Creditors) regardless of criteria such as nature of
transaction or common currency.

The more transactions there are the more headaches are caused by either
approach. You’d be sitting hours over the accounts just to compute the
outstanding balance of, say, supplier x.

Under “Standard Reports” there are reports just a click away that summarize
outstanding balances from both buyers and suppliers.

Is this the answer you were looking for?

Best
York

1 Like
5

taking this together with your later comments regarding a/p, a/r (I am basically familiar with that concept) I think this means expense (and probably income-) accounts only exist in one (the functional) currency, but payable & receivable accounts in each currency used, right?

6

You’re spot on!