foreign exchange?

The majority of our readers are operating a small business in North America and a part of doing business in NA is being constantly aware of the Canadian dollar vs. the US dollar.  From the fall of 2007 to the end of August 2008 the Canadian and US dollar were about par.  This made foreign exchange transactions and translations of financial statements, and budgets and forecasts, relatively easy because it was set at CA$1 to US$1.

Well you would have to be dead to not know of the turmoil happening in the worldwide financial markets right now.  Since September the value of the Canadian versus the US dollar has been steadily declining.  Last Tuesday it cost $1.22 Canadian to buy $1 USD.  Wow.

What does this mean for me?

Well, for one thing, if you are a Canadian company selling products priced in US dollars you just got a bump up in your sales without selling any additional products!  That’s right.  If you sold a product for US$100 two months ago you would have showed CA$100 in gross sales.  Last Tuesday you would have shown CA$122 in gross sales for the same product - a 22% increase!  However, if you buy products or services in the United States to run your company your costs just got 22% more expensive.

Wait.  That was last Tuesday.  What happened to the dollar today?  Which foreign exchange rate should I use when I invoice now?  or prepare my financial statements at month end?

Good questions!  Fortunately, the happy people who provide us with generally accepted accounting principles have the answers.  There is specific gudiance as to what foreign exchange rate you should translate “monetary” balance sheet items to (e.g. cash, accounts receivable, accounts payable), “non-monetary” balance sheet items to (e.g. prepaid and deferred expenses, inventory, fixed assets) and revenues and expenses.  This guidance includes what to do at the transaction level (e.g. creating that invoice you asked about) versus the translation (e.g. at month end how do you value your US dollar bank account?).

Uhm … what?  Help!

Fortunately, we have written a foreign exchange policy that will get you started in the right direction, explain the above terms and you can customize it to your company; and, because we are all about helping the little guy and making the world a better place one technology company at a time, we are giving it away for FREE, for a limited time, while the world figures out this financial mess.