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.
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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 foreign currency remeasurement and translation?
Remeasurement focuses on converting foreign currencies into the subsidiary’s functional currency. Translation focuses on converting the functional currency for a subsidiary into the reporting currency for the parent company. The visual below outlines where gains and losses for each activity are reported in the financial statements.
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.