Foreign Currency Transactions

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    Topic
  • #211685
    Mohamed
    Participant

    Dear Sir,
    I understand very well that the Realized gain/loss account will be closed in the income statement as an operating income (gain/loss).
    I understand very well that the Unrealized gain/loss account will be closed in the income statement as a non-operating income (gain/loss).
    First Question : Am i correct in the above two statements?

    in Hock text book page 109 this paragraph ( • On every financial statement date prior to settlement of the receivable, the balance in the receivable account is adjusted to its amount at the current exchange rate on the statement date, using the spot rate in effect on that date. The unrealized exchange rate gain or loss is recorded in the current period income statement as a financial or non-operating gain or loss, not an operating gain or loss.)
    Second Question: what does Mr. Hock mean ( as a financial OR as a non-operating gain/loss) ?
    thanks in advance

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  • #211689
    Lynn Roden
    HOCK international

    Hi Mohamed,

    The realized gain or loss is not closed in the income statement as an operating income (gain/loss). It is presented in the income statement as a non-operating gain or loss.

    It is shown on the income statement as a financial gain or loss, which on the income statement is called a “non-operating gain or loss.”  It appears below operating income, as shown in the income statement format below. It belongs on the line  “+/- Non-operating gains/(losses).” It is in the same section as interest and dividend income and interest expense. (That is why it is called a “financial gain or loss.”)       

           Sales or service revenues

    −     Cost of goods sold (COGS)                                                   

    =     Gross profit

    −     Selling, general, and administrative expenses                      

    =     Operating income

    +     Interest and dividend income

    −     Interest expense

    +/−  Non-operating gains/(losses)                                               

    =     Income from continuing operations before income tax

    −     Provision for income taxes on continuing operations             

    =     Income from continuing operations

    +/− Gain/(loss) from operations of discontinued Component X

               including gain/(loss) on disposal of $XXXX

    +/− Income tax benefit or (income tax expense) on discontinued

              Component X                                                                    

           Net Income

    Lynn

    • This reply was modified 1 year, 4 months ago by Lynn Roden.
    • This reply was modified 1 year, 4 months ago by Lynn Roden.
    #211693
    Mohamed
    Participant

    Dear Sir,
    I understand very well that the Realized gain/loss account will be closed in the income statement as an operating income (gain/loss).
    I understand very well that the Unrealized gain/loss account will be closed in the income statement as a non-operating income (gain/loss).
    The Question : Am i correct in the above two statements?

    #211695
    Lynn Roden
    HOCK international

    Hi Mohamed,

    Whether realized or unrealized, exchange rate gains and losses are financial gains and losses that appear in the non-operating gains and losses section of the income statement. They are not “closed” until a transaction closes them.

    An unrealized gain or loss is closed by a transaction that shifts the balance to a realized gain or loss; or at year-end, by the year-end closing transaction. A realized gain or loss is closed by a year-end closing transaction.

    Lynn

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