How to Adjust Open Entries Exchange Rates in Dynamics 365 Business Central

In Dynamics 365 Business Central, the Adjust Exchange Rates task can be run to update open subledger entries with current currency exchange rates. The adjustment will lead to a more accurate picture of the unrealized gains and losses of foreign currency transactions. This blog will explain how to set up the currency card posting accounts, the exchange rates, and the adjust exchange rate task in Dynamics 365 Business Central.

Set Up Currency Card Posting Accounts

The unrealized gain or loss is posted towards accounts setup previously in the currency code. These income statement accounts can be setup to be the same or different accounts. This also applies to the realized gain and loss. Realized gains and loss accounts should also be setup for the foreign currencies used. This is done in the Currency page:

Set Up Exchange Rates

Exchange rates should be setup either manually or with an exchange rate service. The adjustment will take place with the updated exchange rate based on the posting range and posting date specified:

These exchange rates can be entered manually or may also be setup with an online currency exchange rate service. More information is available Encore’s Free Exchange Rates in Dynamics NAV & Business Central blog.

Set Up the Adjust Exchange Rate Task

The toggles on the task can be adjusted according to the users suited preferences:

The starting and ending date will include open entries with posting dates in the specified range. However, the user can omit the entry of a starting date to include all entries up to the ending date, to be able to include all prior period entries. The end date must be entered, to avoid the following error message:

For the Adjust Customer, Vendor, and Bank Account toggle, open foreign currency subledger entries will be adjusted with the newest most relevant exchange rate, and the associated unrealized gain/loss will be posted. This will also affect the G/L control account for the subledger customer, vendor, and bank accounts. Other subledger entries, such as items in inventory, fixed assets, etc. are not affected.

For the Adjust G/L Accounts for Additional Reporting Currency toggle, if additional reporting currency is used in the general ledger setup, this will also affect this field for each G/L Account in the general ledger entries page.

Dimensions on past posted entries header level will be considered and copied in the new postings produced. If default dimension rules are used on the G/L control accounts, the system will use these rules. Therefore, if the default dimension on control balance sheet accounts are used, it would have to pick only one dimension and dimension value. It is recommended these accounts and the foreign exchange accounts should have no default dimension rules in place.

The Adjustments Run will result entries to unrealized gain and loss posting accounts; at the time of payments, and closing of open entries, this would lead to postings toward the realized gains and loss accounts.

Users can filter by currency code if more than one foreign currency is used.

Examine the Exchange Rate Adjustment Entry

Once the batch job is run, the user should go to the Exchange Rate Adjustment Registers window:

The local currency is USD and foreign currency is in CAD. Invoices posted in CAD will have the same fixed amount in foreign currency owed, with adjustment to the local currency amount.

In this example, we can see a total of $130 was adjusted in USD, comprised of multiple adjustments. This occurred for the unrealized gain G/L account. These adjustments can be found in the General Ledger Entries, indicated by the Source Code EXCHRATADJ:

To see further details of the entry, choose Entry, then Find entries:

Examining customer ledger entry 4368 in detail, we can see that the entry was originally for $1,000 Canadian dollars, or $790 USD using the January 1, 2021 currency converted rate. As the invoice was in Canadian dollar, that amount will remain fixed. Thus, the US dollar amount is now adjusted by $10 in unrealized gain to $800, as the currency exchange rates indicated the Canadian dollar was gaining value to the posting date of February 28, 2021, which used the nearest exchange rate on February 1, 2021, .8 vs the previous .79.

Realized Gain/Loss Posting When Cash Transaction is Posted

When the cash is received against the invoice, the unrealized gain will be reversed and reduced by the previous recorded amount, while the realized gain/loss will be recorded. The realized gain is recorded based on the exchange rate at the time of posting, and the current posting date of the payment. Thus, the exchange rates used here will be March 1, 2021 .82 compared to January 1, 2021 .79, leading to the $30 realized gain:

Contact us if you have any questions about adjusting open entries exchange rates in Dynamics 365 Business Central.