How does multi-currency accounting work?
Published
Multi-currency is transacting in a currency other than your local one. The governing rule: a business has one functional currency (usually the Saudi riyal) in which its statements are prepared, and every foreign transaction is translated into it at the exchange rate on the day it occurs.
How it's recorded - with an example
Al-Waha sold to a foreign customer for USD 10,000 on 5 June (rate that day 3.75), collected on 5 July (rate that day 3.77):
At invoice (5 June):
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable (in SAR equivalent) | 37,500 | |
| Sales - export | 37,500 |
The customer balance stays recorded in both currencies: USD 10,000 = SAR 37,500 at the invoice-date rate.
Actually received = 10,000 × 3.77 = SAR 37,700Book balance = SAR 37,500FX difference = +200 gain
| Account | Debit | Credit |
|---|---|---|
| Bank | 37,700 | |
| Accounts receivable | 37,500 | |
| FX gains | 200 |
FX gain is not operating revenue - it's a separate line in the income statement under other income/expenses.
Period-end revaluation
Open foreign-currency balances (receivables, payables, USD bank accounts) are retranslated at the closing-day rate, with the difference recorded as an unrealised FX gain or loss. These entries either reverse at the start of the next period or persist per an adopted policy - the governing rule is consistency.
Frequently asked questions
Which rate - the central bank's or my bank's?
A written internal policy sets the source (SAMA's daily rate, say), applied consistently. Different sources every time manufacture artificial differences.
A USD invoice to a local customer?
Possible, but VAT is declared in SAR - the statutory accounts in SAR equivalent.
Should I open a USD bank account in the books?
Yes - a separate account with its balance in its currency, alongside the SAR equivalent in reports.