What is a Revaluation of Creditors/Debtors?
Definition: Revaluing your creditors and debtors at any given time to reflect the true balance outstanding.
The Balance Sheet is designed to reflect the position of the company at a particular point in time. Therefore, 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.
A customer account balance of $3,000 USD 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 your company. This means that if the customer were to pay you at that point in time, you would receive less than when the invoice was originally raised and posted.
Therefore, 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.