Foreign Currency Transactions Coursework Example | Topics and Well Written Essays - 500 words

Foreign Currency Transactions - Coursework Example Because of the widespread involvement of companies in foreign activities, accountants must be familiar with the problems associated with accounting for those activities. The expansion of international business has been of particular concern to accountants because of developments in the worldwide monetary system. These developments, coupled with the existence of a number of acceptable methods of translating foreign financial statements and reporting gains or losses on foreign currency fluctuations have become a challenge to accountants worldwide.Recording and reporting problems are encountered when transactions with a foreign company where investments are measured in a currency other than the country’s currency. Transactions to be settled in a foreign currency must be translated. This means they will have to be expressed in the original country’s currency before they can be aggregated with the domestic transactions of the firm. When a foreign branch maintains its account s and prepares its financial statements in terms of the currency of the country in which it is domiciled, the accounts must be translated from the foreign currency into original country’s currency before financial statements for the combined entity are prepared. Translation is necessary because useful financial reports cannot be prepared until all transactions and account balances are stated in a common unit of currency.The receivables or payables denominated in foreign currencies are subject to profits and losses because of changes in exchange rates.