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What is Functional Currency and how it helps in a Business?

  • July 2014
  • Posted By Ninoslav

Are you up to doing a business? Well you need currency for that and functional currency is best option for a person doing business. It is the actual money used in a business venture and economy of a business depends on that mainly. The primary money, this currency is that on which the business develops and cash is expended on it.

How are transactions made?
When you are into a business, in order to transact it on sales and on payments part, most of business ventures transform them into money that is functional and also provides a certain rate of exchange to it. It not over here, an accounting report along with a balance sheet and cash and monetary transactions are made later which are changed to statements of finance.

The transactions made here are also changed to rate with spot which explains exchange rate in the currency of transactions and finances. This is yet another important factor inside a functional currency.

How to calculate?
In a business transaction, if the calculation is done in the method of accrual, the expenses alongwith the revenues are calculated in one and are received in some other time period. It may happen that the rate of exchange has changed.

If you follow this method, the difference in transaction calculated will be dealt as exchange rate in foreign that has undergone profits and losses. This will not affect the transaction in the business anyway and will be seen as a normal expense only.

Well now that you know about functional currency, to know more click to “What is foreign exchange fraud in a business and is it affecting transactions?”


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