Debitoor Dictionary

Accounting terms explained in a simple way

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  1. Creditor
  2. Debtor
  3. Revaluation

What is a Revaluation of Creditors/Debtors?

Revaluation is the act of examining your accounts receivable and accounts payable converted currencies to reflect the true outstanding balances

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The balance sheet is designed to reflect the position of the company at a particular point in time. The customer or supplier foreign exchange balances that were previously posted and are still outstanding at a month-end or year-end are more than likely to be worth a different amount since the exchange rate has probably changed since they were posted.

Because the exchange rates fluctuate constantly, the amount in the account receivable or account payable must undergo revaluation to reflect the difference in the currency exchange rate.

Revaluation in accounting

It’s important for your financial records to keep track of when a revaluation occurs. The revaluation should clearly indicate:

  • The original amount at the time of invoicing in the foreign currency
  • The original amount in the currency of the business accounting
  • The new amount in the currency of the business accounting
  • And the difference between the two amounts

The resulting difference will be marked as an unrealised gain or loss in the accounts of the business. This should also be recorded in both the accounting currency and in the foreign currency.

Revaluation Example

Robert has a customer account balance of $3,000 USD that converts to £1,935.48 GBP, at a monthly average exchange rate of 1.55 USD to the £.

However, if at the year-end, the exchange rate has risen to 1.65, then the $3,000 is now only worth £1,818.18.

This represents a reduction in the amount owing of £117.30, which is an unrealised loss to Robert’s company. This means that if the customer were to pay Robert at that point in time, he would receive less than when the invoice was originally raised and posted.

Therefore, in order for the balance sheet to reflect the true and accurate value of any outstanding customer or supplier balances it is prudent to re-value these when reporting your accounts.

Multi-currency accounting & invoicing software

Online invoicing & accounting software like Debitoor makes invoicing in foreign currencies as simple as selecting your desired currency from a drop down menu when creating your invoice. Read more about multi-currency invoicing.