●       Use case

●       Setting up journals and accounts

●       Flow

●       Reporting

Use case

$100,000.00 MXN is  exchanged to BASE bank, which offers the following preferential rate of: $1 USD = $17.00 MXN.

It is worth mentioning that the exchange rate is $17.23 MXN and at the time of receiving the dollars the exchange rate of the DOF (Diario Oficial) will be respected.

How can I reflect the outflow and receipt of money with the applied profit?

What do the jorunal entries look like?

Setting up journals and accounts

Journals:

Bank account in local currency

Foreign currency bank account (if you only have one bank then only one journal is used)

Accounts:

Bank accounts assigned to the corresponding journals

Suspension account (102.01 - Type: Receivable)

Exchange profit account (702.01 - Exchange profit)

Flow

1. Initial bank balance in local currency: 

2. Create “Send” type payment to reflect money outflow for the amount purchased. 

Journal entry should look like this:

It is important that the default account receivable or payable be changed to add the suspense account created for the purchase of foreign currency.

The balance sheet looks like this after sending money to the bank to purchase dollars. (we have not yet received the money in the dollar account)

The balance sheet is telling us that we took out $100,000.00 MXN from the account in pesos and now we have a “receivable” account for the same amount. This means that we are waiting to receive the amount purchased with the applied exchange rate.

3. Create payment with the amount received in the currency used and modify the entry to reflect the exchange utility

As you can see, the payment we make to reflect the receipt of the amount purchased in dollars has the daily destination and the amount received in dollars, which allows us to see that there is a difference in favor.

In this case, $100,000.00 MXN was paid at an exchange rate of $17.00 for the preferential rate managed by the BASE bank, which allows a profit to be generated upon receipt of the dollars at the current exchange rate of $17.23, which is why You need to modify the entry to correctly reflect the transaction in accounting terms.

The jorunal entry should look like this: 

The journal entry is indicating that $5,882.35 USD ($101,397.01 MXN) arrived in the bank account in USD, it also reflects how the temporary account is canceled 100% with the $100,000 that were waiting and a line is added to reflect the profit for the preferential exchange rate. The operation must be carried out that subtracts the total that reaches the bank minus the amount paid at the beginning, that is, $101,397.01 - $100,000.00 = $1,397.01 of exchange profit.

Reporting

Balance sheet

The arrival of the purchased amount plus the profit in the USD account is correctly seen.

The suspense account is settled (zeroes).

Profit & Loss

The exchange profit is reflected, as a result of the preferential rate managed by Banco BASE.