What is foreign currency translation?
Foreign currency translation is when the subsidiary entities “translate” their functional currency to the reporting currency of the parent. Basically, they are just converting the functional currency from the subsidiary up to the reporting currency for the parent company. The reporting currency would be the currency that the company reports their financial statements in (i.e. a US company would report in U.S. Dollars).
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In foreign currency remeasurement, where are the gains and losses recorded?
Any gains or losses that arise from a subsidiary remeasuring its financials (foreign currency to functional currency) would be recorded to the income statement in the period that remeasurement occurs.
What is foreign currency remeasurement?
Remeasurement focuses on converting foreign currencies into the subsidiary’s functional currency. Remeasurement is shown in step #1 in the visual below. A subsidiary would likely transact in multiple different currencies with 3rd party customers. However, the subsidiary needs to report in one currency, so it would remeasure its financials to present them in the functional […]
What is the difference between a foreign currency transaction and foreign currency remeasurement/translation?
The key difference is that a foreign currency transaction is when the company transacts with an unaffiliated 3rd party. Foreign currency remeasurement/translation occurs internally between the parent and subsidiaries.