How do you construct balance sheet?

How should a US corp recognize a payment in foreign currency in income statement and balance sheet?

• A US corp invoices and is paid by an foreign company in the customer's non-US currency. The payment is made into a US-based foreign currency account. The US Corp does not immediately convert to USD and at the end of the financial year, the amount is still held in the US-based foreign currency account. The exchange rate changes from the date of the transaction and the date of the balance sheet at the end of the financial year. 1. At what exchange rate should this income be recognized? Invoiced amount and payment match since they are in the same currency. 2. If the income is recognized at the exchange rate on the date of the transaction, and the balance sheet is valued on the end of the financial year, how does one recognize the gain or loss resulting from fluctuation in valuation in the interim? Is this an income statement item or a balance sheet adjustment for the year in which the payment was received? 3. If in subsequent years the exchange rate changes between the end of the previous financial year and the end of the current financial year,  does the gain/loss show in the income statement or some other balance sheet account? Similarly, if the amount is converted to USD in the middle of the financial year, and the rate is different from the end of the previous financial year, how is the difference handled? In the income statement or balance sheet (affecting equity) ?

• Answer:

  You should look up IAS 21, which addresses this very issue: http://www.ifrs.org/NR/rdonlyres/917C8E0C-9D66-4A47-A1D4-55EC736C5204/0/IAS21.pdf Essentially: 1. you report the original transaction using the exchange rate as of the date of transaction; 2. you report the value of a monetary item on each subsequent balance sheet date using the exchange rate at closing; 3. you report exchange differences when a monetary item is settled, or when the item is translated at a different rate when initally recognized or reported in a financial statement, as profit or loss in that period.