FX difference

What it means

An FX difference arises when the same foreign-currency payable or receivable is translated into euros at two different moments at two different rates. The difference is accounting income or cost, even though nothing about the trade itself changed.

Realised differences arise on settlement; unrealised ones arise from translating open items at the closing date. Both flow through the result for the period.

FX differences concern monetary items only - receivables, payables, money in the bank and in the till. An asset bought in a foreign currency is measured at the rate on the day of acquisition, and later rate movements change neither its acquisition cost nor its depreciation.

How it works in practice

Translation uses the rate prescribed by the Accounting Act - the ECB reference rate for the relevant day, or another method fixed in the company’s internal rule. What matters is applying the same method throughout the period.

They show up most on imports and exports, on foreign-currency accounts, and on payments appearing on the bank statement in a currency other than the invoice. Natural hedging - buying and selling in the same currency - reduces them.

When a foreign-currency invoice is paid from a euro account, the bank converts at its own rate. The gap between the euros that left the account and the payable in the books is an FX difference; we post it from the statement and, where payments are frequent, suggest a foreign-currency account so the invoice is paid in its own currency.

What to watch out for

FX differences affect the tax base, so they cannot be dismissed as "just translation". At the close, the commonly missed items are open receivables and payables and foreign-currency cash balances.

An FX difference on payment does not change VAT. The tax base is translated at the rate for the day the tax liability arises and a later rate movement does not correct the return; the error comes when the tax is translated at the payment-day rate and then fails to match the partner in the control statement.