A foreign currency balance is money recorded or held in a currency different from an entity's functional or reporting currency. Its local-currency value changes as exchange rates move, even when the foreign-currency amount is unchanged.
Where can a balance arise?
- Foreign currency receiving accounts
- Unpaid customer invoices
- Supplier payables
- Marketplace or payment-provider balances
- Loans, deposits and intercompany accounts
- Cash reserved for future foreign expenses
How is it revalued?
If a business holds €50,000 and the reporting rate moves from 1 EUR = 1.08 USD to 1.10 USD, the reported value changes from $54,000 to $55,000. The illustrative increase is $1,000, before applying the relevant accounting rules.
Illustrative foreign currency revaluation
| Calculation step | Amount | Reporting value |
|---|---|---|
| Foreign currency balance | €50,000 | Amount held |
| Opening reporting rate | 1.08 USD/EUR | $54,000 |
| Closing reporting rate | 1.10 USD/EUR | $55,000 |
| Illustrative movement | — | $1,000 increase |
The accounting classification and recognition of exchange differences depend on the balance and applicable standards.
Held balance vs. receiving account
A receiving account provides instructions for incoming payments. A foreign currency balance is the amount recorded or held after receipt. Some services convert funds immediately and do not support holding the original currency.
What should treasury monitor?
Track currency, amount, legal holder, availability, fees, rate exposure, expected uses and reconciliation to the ledger. A displayed platform balance may not be a bank deposit and should be understood under the provider's terms.
