Currencies in Business Central
If your company operates in more than one country or region, it's probably important that you can do business in more than one currency. You define your local currency (LCY) on the General Ledger Setup page. Afterward, your local currency will be represented as a blank currency on documents and transactions. When the Currency field is blank, the currency is LCY.
The following video explains how to set up your local currency.
Next, you must set up currency codes for each currency that you use if you buy or sell in currencies other than your local currency (LCY). Also bank accounts can be created using currencies. It is possible to record G/L transactions in different currencies, however, the G/L transaction will always be posted in the local currency (LCY).
Important
Do not create the local currency code both in the General Ledger Setup and in the Currencies page. This will create confusion between the blank currency and the LCY code in the currency table, and bank accounts, customers or vendors might accidentally be created, some with the blank currency and some with the LCY code.
Your general ledger is set up to use your local currency (LCY), but you can set it up to also use another currency with a currency exchange rate assigned. By designating a second currency as an additional reporting currency, Business Central automatically records amounts in both LCY and the additional reporting currency on G/L entry and other entries, such as VAT entries. For more information, see Set Up an Additional Reporting Currency. The additional reporting currency is most often used to facilitate financial reporting to owners that reside in countries/regions using different currencies than the local currency (LCY).
Important
If you want to use an additional reporting currency for financial reporting, make sure that you understand the limitations. For more information, see Set Up an Additional Reporting Currency.
Note
When you post to the general ledger using a foreign currency, Business Central converts the transaction to LCY using the currency exchange rate for the posting date. The G/L entry won't contain information about which currency was used, only its value in LCY. To keep track of the original currency, use the sales and purchase documents and bank accounts that store currency information for entries.
Currencies
Tip
In Business Central if you're looking for real time information about foreign currencies, exchange (FX) rates, or historical rates, you'll find it referred to as currency. In addition to this article, see also Set Up an Additional Reporting Currency.
You must set up a code for each currency you use if you:
- Buy or sell in other currencies besides your local currency ($).
- Record general ledger transactions in both $ and an additional reporting currency.
After setting up the codes, assign the appropriate code to each foreign currency bank account, and assign a default currency code to foreign customer and vendor accounts.
You specify the currency codes in the Currencies list, including extra information and settings that are necessary for each currency code.
Tip
Create the currencies with the international ISO code as the code to simplify working with the currency in the future.
You specify the currency codes in the Currencies list, including extra information and settings that are necessary for each currency code. For more information, see Currencies
Example of a receivable currency transaction
When you receive an invoice from a company in a foreign currency, it is fairly easy to calculate the local currency (LCY) value of the invoice based on today's currency rate. However, the invoice often comes with payment terms so you can delay the payment to a later date, which implies a potentially different currency rate. This issue in combination with the fact that bank currency rates always differ from the official currency rates makes it impossible to anticipate the exact local currency (LCY) amount that is required to cover the invoice. If the due date of the invoice extends to the next month, you might also have to revaluate the local currency (LCY) amount at the end of the month. The currency adjustment is necessary because the new LCY value that is required to cover the invoice amount might be different, and the company debt to the vendor has potentially changed. The new LCY amount might be higher or lower than the previous amount and will therefore represent a gain or a loss. However, since the invoice has not been paid yet, the gain or loss is considered unrealized. Later, the invoice is paid, and the bank has returned with the actual currency rate for the payment. It is not until now the realized gain or loss is calculated. This unrealized gain or loss is then reversed, and the realized gain or loss is posted instead.
In the following example, an invoice is received on January 1 with the currency amount of 1000. At the time, the currency rate is 1.123.
| Date | Action | Currency Amount | Document Rate | LCY Amount on document | Adjustment Rate | Unrealized Gains Amount | Payment Rate | Realized Losses Amount |
|---|---|---|---|---|---|---|---|---|
| 1/1 | Invoice | 1000 | 1.123 | 1123 | ||||
| 1/31 | Adjustment | 1000 | 1125 | 1.125 | 2 | |||
| 2/15 | Adjustment Reversal on payment | 1000 | -2 | |||||
| 2/15 | Payment | 1000 | 1120 | 1.120 | -3 |
At the end of the month, a currency adjustment is performed where the adjustment currency rate has been set to 1.125, which triggers an unrealized gain of 2.
At the time of payment, the actual currency rate registered on the bank transaction shows a currency rate of 1.120.
Here there is an unrealized transaction, and therefore it will be reversed together with the payment.
Finally, the payment is registered and the actual loss is posted to the realized losses account.
Exchange rates
The exchange rates are the tool to calculate the local currency value (LCY) of each currency transaction. For more information, see Update Currency Exchange Rates.
See also
Set Up Currencies
Update Currency Exchange Rates
Set Up an Additional Reporting Currency
Closing Years and Periods
Working with Business Central