Foreign Currency Adjustment
The foreign currency adjustment represents the foreign currency gain or loss related to recognized and planned revenue amounts that have been billed. This step of deferred revenue reclassification occurs only when an invoice is related to the revenue arrangement.
The general ledger impact for this adjustment is:
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For a gain – Debit deferred revenue and credit revenue.
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For a loss – Debit revenue and credit deferred revenue.
The revenue side of the adjustment uses the account designated in the Foreign Currency Adjustment Account field of the item record. This field is on the Revenue Recognition/Amortization subtab. By default, the account is set to use the income account set for the item on the Accounting subtab. You can select any other account with an account type of income, other income, expense, or other expense. The account options include the gain and loss accounts generated by the system after qualifying revaluation transactions.
For more information about the Foreign Currency Adjustment Account field, see Item Configuration for Advanced Revenue Management (Essentials) and (Revenue Allocation).
The variance is calculated for the overlapping foreign currency amounts for billing and revenue recognition for each revenue element. This overlap is multiplied by the difference between the effective billing rate and the effective revenue recognition exchange rate.
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Overlap – Equals the lesser of the effective cumulative billing and the cumulative revenue recognition. Overlap amounts are always in transaction (foreign) currency. For example, if the cumulative recognized revenue for an element is 200 and the effective cumulative billing is 300, the overlap amount is 200. If the cumulative recognized revenue is 200 and the effective cumulative billing is 150, the overlap amount is 150.
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Effective Billing Exchange Rate – Equals effective cumulative billing amount (base) divided by effective cumulative billing amount (source).
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Effective Revenue Recognition Exchange Rate – Equals the cumulative revenue recognition amount (base) before foreign currency adjustments divided by the cumulative revenue recognition amount (source).
The cumulative revenue recognition amount (base) is affected by the accounting preference Exclude Contract Assets from FX Reclassification. If the preference box is clear, include amounts for prior period adjustments for foreign currency gain or loss on contract assets in the total. For more information, see Foreign Currency Gain or Loss on Contract Asset.
The foreign currency adjustment is calculated as follows:
Overlap × (Effective Billing Exchange Rate – Effective Revenue Recognition Exchange Rate) – previous Foreign Currency Adjustments
This adjustment is always at the line level. All amounts in the calculation are for individual revenue elements.
For an example of foreign current adjustments, see Example of Foreign Currency Adjustments During Reclassification.