Process to Settle Open A/P and A/R Transactions

The gain/loss distribution is handled by mirroring the distribution of the transaction lines coded to the AP or AR accounts in the invoice for all Fund and balancing segments. General Ledger, Non-balancing, and Restriction coding is calculated by default from the setup for each currency by the Administrator in Organization>Currency Setup. The distribution is automatically generated and is available in reports.

One of several methods for settling open AP and AR transactions is applied depending on the relationship between the currency of the document being used to affect the settlement and the currency of the invoice. See the examples below to determine how your transactions will be handled by the system:

Method	Currency Invoice> Currency Payment	Example (Functional Currency - USD)
Non-Multicurrency Method	Functional Currency Invoice> Functional Currency Payment	Book an AP invoice in US Dollar and write the check in US Dollar
First Currency Payment Method	Alternate Currency Invoice> Alternate Currency Payment	Book an AP invoice in Canadian Dollar and write the check in Canadian Dollar
Second Currency Payment Method: Alternate Invoice Functional Payment	Alternate Currency Invoice> Functional Currency Payment	Book an AP invoice in Canadian Dollar and write the check in US Dollar
Second Currency Payment Method: Functional Invoice Alternate Payment	Functional Currency Invoice> Alternate Currency Payment	Book an AP Invoice in US Dollar and write the check in Canadian Dollar
Third Currency Payment Method: Triangulation Payment	Alternate Currency Invoice> Non-matching Alternate Currency Payment	Book an AP Invoice in Canadian Dollar and write the check in EUROs

In these examples, the functional currency is USD, and the following currencies have been set up: USD, CAD, and EUR. Let's say I enter each of these invoices using Transactions>Accounts Payable>Enter A/P Invoices, and write checks using Transactions>Accounts Payable>Enter Manual A/P Checks. As you can see, you should select a vendor with a "Pay in Currency" of No, if you intend to pay an invoice in a non-matching currency.

Example (Functional Currency - USD)	Session Form - Currency	Vendor Currency - Pay In
Book an AP invoice in US Dollar and write the check in US Dollar	Enter A/P Invoices - USD Enter Manual A/P Checks - USD	N/A N/A
Book an AP invoice in Canadian Dollar and write the check in Canadian Dollar	Enter A/P Invoices - CAD Enter Manual A/P Checks - CAD	CAD - Yes CAD - Yes
Book an AP invoice in Canadian Dollar and write the check in US Dollar	Enter A/P Invoices - CAD Enter Manual A/P Checks - USD	CAD - No CAD - No
Book an AP Invoice in US Dollar and write the check in Canadian Dollar	Enter A/P Invoices - USD Enter Manual A/P Checks - CAD	USD - No USD - No
Book an AP Invoice in Canadian Dollar and write the check in EUROs	Enter A/P Invoices - CAD Enter Manual A/P Checks - EUR	CAD - No CAD - No

Example

(Functional Currency - USD)

Session Form - Currency

Vendor Currency - Pay In

Book an AP invoice in US Dollar and write the check in US Dollar

Enter A/P Invoices - USD

Enter Manual A/P Checks - USD

N/A

Book an AP invoice in Canadian Dollar and write the check in Canadian Dollar

Enter A/P Invoices - CAD

Enter Manual A/P Checks - CAD

CAD - Yes

Book an AP invoice in Canadian Dollar and write the check in US Dollar

Enter A/P Invoices - CAD

Enter Manual A/P Checks - USD

CAD - No

Book an AP Invoice in US Dollar and write the check in Canadian Dollar

Enter A/P Invoices - USD

Enter Manual A/P Checks - CAD

USD - No

Book an AP Invoice in Canadian Dollar and write the check in EUROs

Enter A/P Invoices - CAD

Enter Manual A/P Checks - EUR

CAD - No

The First Currency Payment Method indicates that the settlement will be affected in the same currency that the invoice was booked in. This method encompasses all adjusting transactions, such as credits or reversals to AP or AR invoices and all payments are in the same currency as the originating invoice. (For example, let's say I want to pay a Canadian invoice in Canadian Dollar in an organization with a functional currency of US Dollar.) The method is applied as follows:

Determine the Carrying Rate:

The Carrying Rate depicts the Source and Functional currency relationship of the invoice as it sits currently on the books. The Carrying Rate is either equal to the Historic Rate (the rate at which the invoice was originally booked), if no revaluations have occurred, or the Last Revalued Rate (this is the rate used the last time the invoice was revalued).

Determine the Current Rate:

The Current Rate is the exchange rate applicable to the current document or the rate in effect at the time the payment is booked. It is based on the document currency, session rate type, and the effective date of each transaction line.

Determine the Payments:

When an invoice is selected for payment, the system determines the open balance in the source currency, and the carrying rate of each open transaction line associated with the invoice. This information is to used display the transaction entry for all the lines relating to the AP or AR subledger GL account. It is the difference between the Carrying Rate and the Current Rate that gives rise to the Gain/Loss recorded in the functional currency.

Note: The Gain/Loss occurs in the transaction line that balances the functional currency side of the entry. The balancing segments follow the transaction line associated with the subledger account, but the non-balancing and restriction segments associated with this line are defaulted by currency (Organization>Currency Setup) and the invoice currency.

Determine the Adjustments:

Adjustments are a transaction that affects an existing invoice that do not involve cash, such as credits and reversals. When an existing invoice is selected for adjustment, the Rate associated with all transaction lines related to the subledger GL account are locked at the carrying rate. If the current rate is different, then a gain/loss is calculated and recorded.

A second currency payment indicates that the settlement is affected in a currency that is different than the invoice currency, but either the invoice currency or the payment currency is functional. Below you will find two cases that apply to this method: Alternate Invoice Functional Payment Scenario and Functional Invoice Alternate Payment Scenario.

When payments are made in the functional currency, but the functional currency does not match the invoice currency, the Second Currency Payment Method for functional payments must be used. (For example, let's say I want to book an invoice in Canadian Dollar and write the check in my functional currency of US Dollar.) This method is applied using the following steps:

Determine the Carrying Rate:

The Carrying Rate depicts the Source and Functional currency relationship of the invoice as it sits currently on the books. The Carrying Rate will either be equal to the Historic Rate (the rate at which the invoice was originally booked), if no revaluations have occurred, or the Last Revalued Rate (this is the rate used the last time the invoice was sequentially revalued).

Determine the Payment Amounts:

The payment amounts are the amounts that will be paid in the second functional currency. The amount is calculated by dividing the source balance in the subledger by the Carrying Rate of the open invoice.

Determine the Current Rate (APS only):

The Current Rate is the rate between the source currency of the invoice, and the functional (payment) currency for the check date and Rate Type associated with an APS check.

Update the Subledger:

When the payment is processed, the subledger must be updated using the source currency of the invoice. This is accomplished by liquidating the functional balance per the transaction entry, and then dividing the functional payment and discount amounts by the Carrying Rate to determine the amount to reduce the source balance.

Note: When payments are made using the Transactions>Accounts Payable>Enter Manual A/P Checks form, or conversely if a receipt is entered using the Alternate Invoice Functional Payment scenario, gains/losses are not automatically calculated because functional currency documents have a fixed exchange rate of 1. Therefore, if an invoice is to be settled at a value different than its carrying value, you must either revalue the invoice before settlement, or record the gains and losses manually.

Since the APS process is calculated by the system, gains and losses are as well. The functional debit and credit fields are calculated by taking the functional carrying balance for the AP lines, but the Cash is calculated by dividing the source carrying balance by the Current Rate. This will generally result in a difference that must be offset by following the distribution of the invoice for the balancing segments and the default gain/loss distribution for the non balancing, General Ledger, and restriction segments.

When payments are made in an alternate currency, and the invoice currency is functional, the Second Currency Payment Method for alternate payments is used. Unlike the Alternate Invoice functional payment scenario, gains and losses do not occur because the invoice was not booked in an alternate currency. The Current Rate is used to determine the Alternate currency value of the Invoice, and the subledger is also liquidated per the Current Rate. (For example, let's say I want to book an AP Invoice in US Dollar and pay it in Canadian Dollar in an organization with a functional currency of US Dollar.) This method is applied using the following steps:

Determine the Current Rate:

The Current Rate is the exchange rate applicable to the current document or the rate in effect at the time the payment is booked. It is based on the document currency, session rate type, and the effective date.

Determine the Payment Amounts:

The payment amounts are the amounts that will be paid in the second Alternate currency. The amount is calculated by dividing the functional balance in the subledger by the Current Rate.

Update the Subledger:

When the payment is finally processed, the subledger must be updated using the source currency of the invoice. This is accomplished by liquidating the functional balance per the transaction entry, and then dividing the functional payment and discount amounts by the Carrying Rate to determine the amount to liquidate the source balance.

Note: Unlike the Alternate Invoice Functional Payment Scenario, the Current Rate is the only rate that applies for the entire document in the Functional Invoice Alternate Payment Scenario. Only one rate can be used in this scenario, regardless of whether or not multiple effective dates apply. The system uses the exchange rate that is based on the first effective date listed in the Transaction Entry table if it is a manual document, or the check date if it is an APS document. In order to ensure that gains/losses are not calculated on the transaction, exchange rates cannot be overridden under this scenario.

The method used for calculating how much will be paid in a Third Currency (non-functional not the same as the invoice) is called Triangulation. (For example, let's say I want to pay a Canadian invoice with EUROs in an organization with a functional currency of US Dollar.) The formula is applied using the following steps:

Determine the Carrying Rate:

The Carrying Rate depicts the Source and Functional currency relationship of the invoice as it sits currently on the books. The Carrying Rate will either be equal to the Historic Rate (the rate at which the invoice was originally booked), if no revaluations have occurred, or the Last Revalued Rate (this is the rate used the last time the invoice was revalued).

Determine the Triangulation Date:

The Triangulation Date is the date related to the point in time that the Carrying rate for the invoice was established. This is the effective date used when the invoice was first established unless a revaluation has occurred (Activities>Revalue Multicurrency). If revaluations have occurred, it is the effective date used the last time the invoice was revalued.

Determine the Triangulation Rate Type:

The Triangulation Rate Type is always the default Rate Type (Maintain>Multicurrency>Exchange Rate Types).

Determine the Match Rate:

The Match Rate is the exchange rate between the third currency and the functional currency. It is determined using the third currency, the Triangulation rate type, and the triangulation date.

Determine the Triangulation Rate:

The Triangulation Rate is the exchange rate between the payment currency (third currency) and the invoice currency. It is derived by dividing the Match Rate by the Carrying Rate.

Determine the Payment and Discount Amount:

The Payment Amount minus the Discount is the amount that is paid in the third currency. These amounts can be calculated by either dividing the source currency balance and discount of the invoice by the Triangulation Rate, or dividing the functional currency carrying balance and discount of the invoice by the Match Rate.

Update the Subledger:

When the payment is finally processed, the subledger must be updated using the source currency of the invoice. This is accomplished by multiplying the payment and discount amounts by the Triangulation Rate.