Reconciling a trial balance ledger total in a generated base currency

If you use Ledger Conversion (LCN) to generate a new currency value, for example second base currency, and you have manually posted a journal to transfer the profit or loss to retained earnings, then when you produce a trial balance for the new year it may not balance in the newly generated currency.

The trial balance ledger total in the newly generated currency is the difference between:

the total profit or loss calculated as the total of each individually converted profit and loss transaction for the year, where the transactions were converted using the period or daily rate for each transaction

and

the total profit or loss calculated from the manually entered 'profit and loss transfer to retained earnings journal' at the rate for the period in which this journal was entered.

This difference is caused by a combination of:

fluctuations in the daily or periodic currency exchange rates that were used by Ledger Conversion (LCN) to generate the new currency value for each transaction

and

the manual adjustment that was made to transfer the profit and loss to retained earnings in the balance sheet.

In this situation you must post a manual journal adjustment for this difference, to the prior year profit and loss account and retained earnings accounts, in the new currency only.

An Example

At the end of a financial year, the Profit & Loss accounts show an outstanding balance in the base currency for the year of 59,412,425.15.

In period 13, a journal is posted to transfer this 'profit' amount, in the base currency, from the 'Prior Year's Profit/Loss' account into the 'Retained Earnings' balance sheet account.

Ledger Conversion (LCN) is run to generate a second base currency from the base currency. It converts all the transactions posted to each period in the year.

It calculates a total value for all of the profit and loss transactions, in the second base currency, of 15,372,595.23. The second base currency values are calculated using the period rates for each transaction.

It converts the profit transfer journal value using the period 13 rate only and calculates a value of 14,912,518.71.

The difference of 460,076.52 appears as the Ledger Total on the Trial Balance when it is run for period 1 in the new financial year.

To balance the trial balance in the second base currency, you must post a journal for this amount in the second base currency only, to the profit and loss and retained earnings accounts for the prior year.