What is the journal entry to record a foreign exchange transaction loss?
A foreign exchange transaction loss 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 decline means that the company will only collect $95 instead of $100, which represents a loss. To record the foreign exchange transaction loss, the company would debit cash for $95, debit foreign exchange loss for $5 (expense), and then credit accounts receivable for $100.
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