Accounting technology / Glossary / FX revaluation

What is FX revaluation?

Definition

FX revaluation is the period-end step that restates balances held in foreign currencies, such as bank accounts, receivables, payables and loans, at the closing exchange rate. The difference from their previously recorded value is booked as an unrealised exchange gain or loss, so the balance sheet shows those balances at current rates.

Also calledforeign currency revaluationcurrency revaluationunrealised FX

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Revalued: Monetary balances only
Rate used: Closing rate at period end
Posted to: Unrealised gain or loss

How FX revaluation works

Only monetary items are revalued: cash, receivables, payables, loans and other balances to be settled in a fixed amount of currency. Non-monetary items, such as fixed assets, inventory and prepayments, stay at the historical rate under IAS 21 and ASC 830. The revaluation journal debits or credits each foreign-currency balance and posts the difference to an unrealised gain or loss account in profit or loss. Many systems reverse the entry on the first day of the next period and revalue again at the next close, so that the eventual settlement records the full realised gain or loss. Intercompany balances in foreign currency are revalued too, and differences between the two sides often surface during intercompany reconciliation. Revaluation is different from translation, which converts a whole subsidiary's accounts into the group currency for consolidation.

Common questions

Which balances are revalued at period end?+

Monetary items in a foreign currency: bank accounts, receivables, payables, loans and accruals. Fixed assets, inventory and prepayments stay at the rate on the day they were recorded.

Why is the revaluation reversed the next month?+

Reversing it means the books return to the original rate, so when the balance is paid the system records the whole realised gain or loss in one place and the next close revalues from scratch.

What is the difference between revaluation and translation?+

Revaluation restates an entity's own foreign-currency balances at the closing rate. Translation converts an entire subsidiary's financial statements into the group's presentation currency when consolidating.