ExplanationIntermediate
How is a foreign currency transaction gain or loss recognized in net income when there is a change in the value of a foreign currency account receivable?
A foreign currency transaction gain or loss is recognized in net income when there is a change in the value of a foreign currency account receivable between the transaction date and the settlement date. If the foreign currency strengthens, a gain is recognized; if it weakens, a loss is recognized. This recognition occurs even if the gains or losses are unrealized at the time they are recorded.
Key points
- Foreign currency transaction gains or losses are recognized in net income.
- Recognition occurs between the transaction date and the settlement date.
- A gain arises if the foreign currency strengthens; a loss arises if it weakens.
- These gains and losses may be unrealized at the time of recognition.
Source:International Financial Statement Analysis Workbook (CFA Institute ...· Understanding Income Statements· p. 136–145
Related questions
International Financial Statement Analysis Workbook (CFA Institute ...
Thomas R. Robinson;
Fourth Edition · John Wiley & Sons, Inc.