What is the journal entry to record a foreign exchange transaction gain?
A foreign exchange transaction gain occurs when the transaction currency is different than the reporting currency for the company. On the initial transaction date, they would record the $100 sale with a debit to accounts receivable and a credit to revenue.
However, 30 days later when the customer goes to pay using the current exchange rate, the increase means that the company will collect $105 instead of $100, which represents a foreign exchange gain. To record the foreign exchange transaction gain, the company would debit cash for $105, credit foreign exchange gain for $5, and then credit accounts receivable for $100.
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