Under normal circumstances when supplier invoice was received following which payment would then be made, the gain and loss would
be calculated immediately on the payment date, as shown below.
However, if payment is made before the invoice date, the actual exchange gain/loss would be wrong to be presented in the month the payment was made.
Reason being 1) The exchange rate for the invoice is not available yet at the point of making the advance payment
2) The month that the payment was made would have been closed and to insert the actual exchange gain/loss in the same month
would be erroneous and affecting that month's Profit and Loss statement.
Refer to the screen shot below, assuming you made a payment (in advance) to your supplier on 13th Sep 2011 and invoice was received only on
19th Oct 2011(one month later, or cross month).
This is especially important to take note if you are reporting monthly financial results to your management.
Notice that the actual gain and loss is calculated and presented in the month of Oct 2011(whichever the later date, compared with payment date).
*Take note also that once invoice is received, immediately go to the payment and offset in the same month as the supplier invoice.
Do not let the payment remain as advance until months later (after Oct 2011), as it will affect your profit and loss report with the
posting of exchange gain/loss in Oct 2011 when it would had been closed.
