Currencies in Business Central

As companies operate in more countries/regions, it becomes essential that they are able to trade and report financial information in more than one currency. The local currency (LCY) is defined in the General Ledger Setup page as described in the article Understanding the General Ledger and the Chart of Accounts. Once the local currency (LCY) has been defined, it will be represented as a blank currency, so when the Currency field is blank, it means that the currency is LCY.

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 a so-called additional reporting currency, Business Central will automatically record amounts in both LCY and this additional reporting currency on each 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 G/L using a currency code, such as to post an expense in a general journal using a currency code, the transaction is converted to LCY using the currency exchange rate for the posting date. The G/L entry will not contain information of which currency was used, only its value in LCY. If you want to keep track of the original currency, such as for an invoice, you must use the sales and purchase documents as well as bank accounts that do store currency code information for the entries.

Currencies

Tip

In Business Central if you are looking for real time information about foreign exchange (FX) rates or historical rates, you will 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 (LCY).
  • Record general ledger transactions in both LCY 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

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