Understand Advanced Currency Management in NetSuite
Introduction
Currency concerns in NetSuite can be a confusing topic. The confusion is compounded for users of prior ERP/Accounting software that may use a different approach than NetSuite when it comes to managing currencies. I’ve written before on this topic, and as I continue to learn from my clients’ situations, my knowledge deepens, and I would like to share another iteration of the topic with my dear blog readers.
In this article, I review and expand on NetSuite’s approach to currency management, and I created an 11-minute video posted at the end of this article which takes the viewer through the entire process of moving from a foreign currency transaction to consolidating foreign currency subsidiaries.
Common Currency Problem in NetSuite
We often get asked the following question, in various forms:
“I have a [Currency A] transaction in a [Currency B] Subsidiary. My consolidated reporting is in [Currency A]. Shouldn’t the [Currency A] amount in the consolidated report match the original transaction amount?”
To answer this question, we need to understand the relationship between currencies and exchange rates in NetSuite, and which Exchange Rates drive how transactions are represented both in the General Ledger and in Consolidated Reporting. In my earlier article, “Understand NetSuite’s Currency Translation”, I explain the different rate tables and how they drive reporting and valuation, and that article provides some additional backdrop to the solution to the question posed above.
Transaction Currency, Base Currency, and Consolidated Currency in NetSuite
3 distinctions must be understood when evaluating currency impacts in NetSuite OneWorld reports:
- Conversion to General Ledger: This is the process NetSuite uses to convert the transaction currency to the Ledger Base Currency, AKA “Functional Currency”. An example would be the US Dollar impact on the GL for the Euro amount of a customer invoice where the customer’s currency in NetSuite is Euro and the subsidiary’s base currency is USD.
- Currency Revaluation: A month-end process to markup or mark down the Base Currency value of a non-base currency balance. Typically, this process is done on Receivables, Payables, and Bank Balances (in short, any account that is expected to be converted to actual foreign currency cash, or actually consists of foreign currency cash). As the exchange rates change, there needs to be a revaluation to reflect the true current base currency amount that the foreign currency balance represents.
- Currency Translation: The NetSuite built-in function to consolidate subsidiary financial statements into a parent subsidiary’s currency. An example would be a child subsidiary whose base (functional) currency is US Dollars that is owned by a parent-subsidiary whose base currency is Euro. When running consolidated reports, the entire USD ledger of the child must be translated into Euro to allow uniform, consistent reporting.
Exchange Rate Tables in NetSuite
The exchange rates that NetSuite uses to generate Currency Revaluation (point 2. above) are held in a different table than the rates used to perform Currency Translation for Consolidation (point 3. above).
Rates used in Revaluation: These rates are found in the “Currency Exchange Rates” table, which can be found at Lists > Accounting > Currency Exchange Rates. The table stores daily rates, and the one used for Currency Revaluation at period end would be the rate of the last day of the relevant period.
Rates used in Translation: These rates are found at Lists > Accounting > Consolidated Exchange Rates. The rates used depend on settings on the Account record and need to be updated each period via the Period Close checklist or by clicking the “calculate” button as in the below screenshot.
Response to the Common NetSuite Currency Question
Returning to the question posed above, we now have the main elements needed to respond:
“I have a [Currency A] transaction in a [Currency B] Subsidiary. My consolidated reporting is in [Currency A]. Shouldn’t the [Currency A] amount in the consolidated report match the original transaction amount?”
The short answer to the question is “It depends“.
Mainly, it depends on which “rate type” is selected on the Account record and on whether the Account is revalued each month. These are among the core concepts discussed in the article referenced above.
The below short video is a review of those concepts and provides an explanation of whether and when Consolidated reports will produce the same result as source transactions in the same currency:
Conclusion
At Prolecto Resources, Inc., we bring together a wealth of accounting knowledge and extensive experience with NetSuite. Our team comprises skilled accountants who truly grasp the significance of specialized expertise in NetSuite. We are dedicated to utilizing our multi-dimensional knowledge to gain a profound understanding of our clients’ needs and challenges. If you’re interested in learning more about working with Prolecto, feel free to reach out to us!!