Typical Transaction 14
Example: Currency devalues from 1.7 to 2.0 US Dollar per GB Pound. Currency gain 6,600
The entries for this transaction in the Accounting System can be seen here, in the AccountingLab and in the Accounting System, Operation O35E, Q1:
| Adjustment for Currency Gain | Decrease in Creditors (-) |
|---|---|
| Increase in Retained Earnings (+) |
The adjustment in this transaction is associated to Typical Transactions TT2 and TT8 and the changes in these transactions. The table below shows how the changes in TT8 and TT14 are connected:
| Balance Sheet | ||||
|---|---|---|---|---|
| Original | After Changes TT2 | After Changes TT8 | After Changes TT14 | |
| Assets | ||||
| Current Assets | 767,850 | 767,850 | 730,450 | 730,450 |
| Bank | 758,550 | 758,550 | 721,150 | 721,150 |
| Debtors and Prepayments | 9,300 | 9,300 | 9,300 | 9,300 |
| Other Current Assets (Stock) | 0 | 0 | 0 | 0 |
| Fixed Assets | 44,000 | 37,400 | 44,000 | 44,000 |
| TOTAL ASSETS | 811,850 | 805,250 | 774,450 | 774,450 |
| Liabilities | ||||
| Current Liabilities | 44,300 | 37,700 | 6,900 | 300 |
| Creditors | 44,000 | 37,400 | 6,600 | 0 |
| Accruals | 300 | 300 | 300 | 300 |
| Long Term Liabilities | 0 | 0 | 0 | 0 |
| Long Term Loan | 0 | 0 | 0 | 0 |
| Equity | 767,550 | 767,550 | 767,550 | 774,150 |
| Shareholders’ Equity | 800,000 | 800,000 | 800,000 | 800,000 |
| Income Statement | -32,450 | -32,450 | -32,450 | -25,850 |
| TOTAL Liabilities + Equity + Retained Earnings | 811,850 | 805,250 | 774,450 | 774,450 |
When adjusting for currency gain, a devaluation of the exchange rate USD/GBP from 1.7.to 2.0 the following is observed:
– There is no change in Current Assets
– Creditors decrease by the amount of the currency gain from 6,600 in TT8 down to zero in TT14.
– Current Liabilities decrease by the same amount as the decrease in Creditors, from 6,900 to 300. .
– Loss in the Income Statement decreases by 6,600 from -32,450 to -25,850.
– Equity increases by the amount gained 6,600 up from 767,550 to 774,150.