Question

For Accounts Payable denominated in a foreign currency, an increase in the direct exchange rate (dollar has weakened) results in an exchange gain.

Answer 1

True.

For Accounts Payable denominated in a foreign currency, an increase in the direct exchange rate (dollar has weakened) results in an exchange gain.

What is an exchange gain or loss?

• A change in the exchange rate between the time an invoice was issued and the time it was paid results in an exchange gain or loss.
• An exchange gain or loss results when an invoice is entered at one rate and paid at another.

• The exchange rate at which the consumer pays for this invoice will ineluctably differ from the rate at which you recorded the invoice in your accounting system, even though you will have appropriately converted your prices.
• The cash you receive will be considerably more than what you initially invoiced as a result.
• This difference is known as an exchange gain or loss depending on which way the exchange rate has gone, i.e. whether the currencies involved have appreciated or depreciated in value (a gain or loss).

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