Revaluation Without Reversal Double-Counts FX
A US company (USD) records a vendor bill on February 1 from a German supplier for €100,000 at the exchange rate 1.10, or $110,000. On February 28, the rate is 1.12 and the Controller runs currency revaluation. The system generates a $2,000 unrealized loss journal. On March 5, the company pays €100,000 at 1.09, or $109,000, and NetSuite records a $1,000 realized gain when the payment is applied to the bill. The February revaluation journal had no reversal date and was not reversed in March. The Controller sees a net $1,000 loss in the FX accounts for a transaction that produced an economic gain, and asks for a reconciliation. February and March are both open, and the bill is in Paid status.
1. Reconcile the FX accounts and compute the correct net gain or loss. Show the journal entries under the reversal and no-reversal approaches.
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Original bill: Dr Inventory/Expense 110,000; Cr AP 110,000. February revaluation at 1.12: Dr Unrealized FX Loss 2,000; Cr AP 2,000. March payment at 1.09: Dr AP 110,000; Cr Cash 109,000; Cr Realized FX Gain 1,000.
If the revaluation is not reversed, AP still carries a $2,000 credit after the payment, and the P&L shows a $2,000 unrealized loss plus a $1,000 realized gain - a net $1,000 loss when the economic result is a $1,000 gain. Correct approach: reverse the February revaluation on March 1: Dr AP 2,000; Cr Unrealized FX Loss 2,000. Then the payment relieves the bill at its original $110,000 and the net P&L is a $1,000 gain. Alternatively, if policy does not reverse, the payment must relieve $112,000 and record a $3,000 realized gain; NetSuite will not do that automatically because the bill's functional amount is fixed at the original rate, so reversal is the practical control.
2. Why did NetSuite not reverse the revaluation automatically, and how do you fix the records and future runs?
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NetSuite generated the revaluation journal without a reversal date, or the reversal was deleted. Check the Currency Revaluation history and the journal's System Notes; confirm whether a reversal journal exists in March. Post the missing reversal in March, dated March 1, and reconcile the unrealized FX account to the open foreign-currency balances. For future runs, set the revaluation to reverse on the first day of the next period and make 'revaluation journal has a reversal' a close-checklist test. Do not net the error by editing the payment rate; that would hide the trail and misstate the realized gain.
3. What monthly controls would catch an unreversed revaluation before the close is certified?
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Reconcile the unrealized FX account monthly; review a list of revaluation journals without reversals; restrict manual exchange-rate override on payments and bills; lock revaluation journals from editing; and document the policy choice - auto-reverse versus gross-up at settlement - so the realized and unrealized accounts are consistently presented. Add the reconciliation to the close checklist with a named reviewer.