Explain the concept underlying the two transaction perspective to accounting for foreign currency transaction.
Explanation of Solution
Accounting:
Accounting refers to correct recording and reporting of, the financial transactions and events of an organization. Accounting profession involves, use of accounting practices that are standardized, so that users can easily understand and compare the accounting information.
The concept of accounting alternatives underlies the two transaction perspective to accounting for foreign currency transaction. EX corporation considers the sale amount in the currency value of Country U at the time when sale occurs. At this point of time, the sale has been done completely and no further adjustments are needed for sales account. The difference between the received value, at the time of sale and at the time of payment due, occurs because of extension in foreign currency credit to customers. This difference can be positive or negative and reported in income statement as Foreign Exchange Gain or Loss.
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