This page is a short overview of how Light handles foreign currency. Each section links to a detailed article.
Three currencies on every line
Every ledger line in Light stores its amount in up to three currencies:
- Transaction currency: the currency on the invoice or bill, for example USD
- Local currency: the currency your entity keeps its books in, for example GBP
- Group currency: the currency your group reports in, for example EUR
Light converts each line when it posts, using the rate for the posting date. This means you can run reports in local or group currency at any time during the month.
Where rates come from
Light uses the daily reference rates from the European Central Bank (ECB). For currencies the ECB does not publish, it uses ExchangeRate-API. You can also set your own rates for your company or for a single entity. See When Custom Rates Apply vs System Rates.
When an invoice or bill is paid
Light compares the invoice or bill at its original rate with the payment at the payment-date rate. It posts the difference to the FX gain or FX loss account. This is the realized gain or loss. See Clearing, FX gain/loss, and CTA.
At month-end
When you run the FX revaluation task as part of closing the month, Light does two things:
- It values open foreign-currency balances, such as unpaid invoices and bills and foreign-currency bank accounts, at the month-end rate. It posts the difference to the unrealized FX gain/loss account. This is the unrealized gain or loss.
- It translates each entity's balance sheet into the group currency at the month-end rate. Equity stays at the rate it was recorded at, and the difference is posted to the currency translation adjustment (CTA) account in equity.
See FX revaluations.
Example
Your UK entity, which keeps its books in GBP, receives a bill for $10,000.
| Date | Rate | GBP value | What Light posts |
|---|---|---|---|
| Jan 15: bill posted | $1.25 = £1 | £8,000 | The bill, at £8,000 |
| Jan 31: month-end revaluation | $1.20 = £1 | £8,333 | Unrealized FX loss of £333 |
| Feb 10: bill paid | $1.22 = £1 | £8,197 | The payment, and a realized FX loss of £197 |
| Feb 28: month-end revaluation | Reversal of January's £333 unrealized loss |
Across the two months, the total loss is £197. This is the difference between the value of the bill when it was booked and the amount you paid.
Between February 10 and 28 the bill is fully paid, but January's £333 is still on the accounts payable account. It comes off when you run the revaluation for February. See Why a paid invoice can still show a balance.