“Accounting currency”

definition

Accounting currency is the term that defines the currency used by a firm to record all of their transactions and financial statements. Also known as the reporting currency or presentation currency, the accounting currency can be different from the currency in which the company sells its products.

In order to simplify their financial statements, businesses with complex foreign currency management needs usually report all their transactions in their home currency, including those carried out in foreign currencies.

For instance, a German company buys components from South Korea and China in Korean won and Chinese yuan. They sell their products in the euro area, the UK and the United States (in euros, British pounds and US dollars), but report their transactions in euros so that their financial reports are easier to understand.

The International Accounting Standard 21 (IAS 21) defines the presentation currency as “the currency in which the financial statements are presented”, while the functional currency is “the currency of the primary economic environment in which the entity operates”.

Companies whose functional currency is a major one, like the euro, yen, pound or dollar, usually carry out the bulk of their transactions in their home currency. However, export companies from countries with smaller economies and “minor” currencies are likely to use different currencies for accounting and sales purposes.

 


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