Managing Foreign Currency Purchases

This article takes you through the process of recording foreign currency purchases from converting the item pricing to your currency and adding other costs such as freight and shipping, brokerage fees, customs and duties and import taxes.

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Recording Purchases in Your Currency

Since you cannot manage project purchases made from another country in two separate currencies, you will want to record your item purchases in your currency. This will allow you to invoice your client in your currency and record your purchase payment with the actual amount paid in your currency after your bank has converted your foreign purchase. This process also provides an audit trail of your purchase when reconciling your bank account in your currency. 

  1. From the Item menu, scroll down to the item pricing table. Instead of entering the Unit Cost under the Purchase Cost column in the foreign currency amount, use the Currency Calculator at the bottom of the Purchase Cost column.

  2. Select the Currency you are purchasing from and enter your estimated Exchange Rate, then enter the foreign currency purchase amount as your Foreign Unit Cost. 

    Note:
    At this stage, you are estimating the exchange rate so the item price can be converted in your currency. You will not know the actual exchange rate that the bank has charged you until the purchase payment is made with the vendor. When your purchase payment is processed, you will update the actual purchase cost to reflect the amount you paid in your currency. 

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  3. Click the Exchange Rate link to calculate the item purchase cost and selling price which will now be converted in your currency at the top of the item pricing. The Foreign Cost is shown at the bottom and the item pricing is now shown in your currency with the purchase unit cost and selling price having also been converted. With applicable markups and sales tax, the Selling Total will now be reflected in your currency.

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  4. If you are ready to send the client a proposal for this item, it will now be priced in your client’s currency. When you subsequently place the order for this item, the PO will be shown in your currency and not the vendor’s foreign currency. To avoid some confusion with the vendor, in the Vendor Description field for the item, make a note that the order has been converted in your currency at the exchange rate you used and then also note the actual purchase cost in the vendor’s currency.

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  5. Throughout the ordering processing, leave both the Purchase Cost and Selling Price in your currency. When you receive the vendor invoice, make your payment in that foreign currency but do not post the payment on the order in Studio Designer until you have physically made the payment and you know the actual amount paid on your credit card statement showing you the converted amount in your currency. 
  6. Once you know the converted amount paid in your currency, update the Purchase Unit Cost to the actual amount you paid. You can also choose to lock the Selling Price to what it was originally set to if you do not want to pass on the cost change to the client then save the item pricing changes.

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  7. The purchase order will then be updated with the actual converted purchase cost paid from your account in your currency. You can now record your payment from the Payment tab on the order or from Money Out, so when you reconcile your bank account, it will match the amount paid on your credit card statement.

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    Note: The purchase cost can always be changed at any time even if an order has already been created. The order will be updated with the updated purchase cost and subsequently the payment you now want to make will reflect the actual amount to be recorded as paid. 

Recording Additional Fees as Other Costs 

When you are purchasing items from another country, in addition to shipping and freight, you might incur other charges. For instance, if the vendor is working with a global shipping partner, they may also charge you for all the shipping, brokerage fees, customs and duties or other import taxes. If these fees are all coming from the same vendor that you are purchasing the item from, then you can include these amounts as Other Costs in the item pricing and build it in with the total price of the item. 

Click the Other Costs link in the Purchase column under Purchase Cost. Select the Other Cost from the drop-down option then click Add Other Cost. Complete the Purchase and Selling price and other applicable options like Deposit % and Taxable then Save. 

Please note that when entering your additional fees as other costs, the Currency Calculator does not convert the other cost. You will need to manually calculate the same exchange rate you used in the Currency Calculator and convert the other cost to your currency then add this converted price as your purchase and selling price when you are completing the details for the other costs. 

If you want to breakdown your other costs as separate amounts for freight and shipping, brokerage fees and customs and duties taxes, select another Other Cost then add the other cost and complete your manual currency conversion for that cost and save. A screenshot of a computer

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You may end up with three or four separate other costs, but the total will be tied together as one overall price for your Other Costs. Since you have separated out each of the other costs, the respective income and expense accounts set with those other costs will appear as amounts in their GL accounts. 

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The proposal and PO will also show a breakdown of these other costs when they have been added as separate costs. 

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Recording Additional Fees as Component Items 

Another way of recording additional fees associated with items purchased from another country is to add them as separate component items. This process can be followed as best practices if you are receiving an invoice for these costs from various sources. For instance, if the vendor is not billing you directly for shipping or you are receiving the invoice for customs and duties from another vendor, then track these costs as component items instead of as other costs within that item. 

To associate this item with the main component item, it must be added to the same Room. When you add a new item, enter the same Item # as the main component then for the Component field, enter this as component B. Any additional fees you want to associate with this item can be added as component C, D and so on. Complete the item details and set the pricing by using the Currency Calculator to convert the foreign purchase cost to your currency. In some instances, you may be billed in your currency so this component item can be completed without calculating the currency conversion. 

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You can add these component items on the same proposal as separate line items, or it can be presented and viewed on the PDF showing just the first component with the additional fees built into the total price of the item. The importance of creating separate component items for these additional fees is that it allows you to create separate orders with the different vendors you are making payments to. 

From a reporting standpoint, you may want to add the fees associated with your foreign currency purchases as Other Costs because they can be tracked to their respective income and expense accounts. But this is not an option if you want to track these costs with the same item, and you are receiving invoices for these costs from different vendors. So, adding them as component items is what will allow you to record payments made to those different vendors.