Foreign currency valuation EXPLAINED

with example

In this article we are going to understand foreign currency valuation, foreign currency
translation and how exchange rate difference amount is treated while clearing of open item.

Every month end, financial reports need to be prepared for local authority in local currency as
well as for group consolidation in group currency.

Foreign currency valuation is about valuating transaction currency amount into local currency
amount. Foreign currency translation is about valuating local currency into group currency. Let’s
discuss both one by one.

Foreign currency valuation: (Transaction currency to local currency)

Organizations do have transaction in foreign currency. When document is entered in foreign
currency (document currency other than company code currency), local currency amount is
derived by using currency exchange rate existing at the time of document posting. But later on
exchange rate might change hence amount in local currency derived using exchange rate at the
time of reporting will not be same as local currency amount in posted document. Impact of
exchange rate changes needs to be taken into account by posting adjustment entries.

Example:
Company code currency: INR

Group currency: USD

Example 1: On 5th August, I posted vendor invoice of 100 GBP.

♦ Currency exchange rate on 5th August: 65 INR = 1 USD & 1GBP= 1.3 USD

(Currency exchange rate type has reference currency USD)

Vendor invoice is posted in below currencies:

Let’s say month end report is to be prepared on 31st August

♦ Currency exchange rate on 31th August: 70 INR = 1 USD & 1GBP= 1.5 USD

(Currency exchange rate type has reference currency USD)

To arrive at exact position of the day of reporting, below adjustment accounting entry should be
posted:

This step of posting adjustment entry is referred as foreign currency valuation. Hence
foreign currency valuation is needed to incorporate the impact of exchange rate changes.

Adjustment accounting entry is posted to get the exact position of balance sheet on the day of
reporting. Since this exchange rate gain/loss is unrealized (hypothetical) hence adjustment
accounting entry is reversed with posting date in next month.

Standard practice is to run foreign currency valuation on last day of the month which post
adjustment accounting entry on last day of the month and reverse the same on first day of next
month.

Foreign currency translation: (Local currency to group currency)

Once foreign currency valuation is complete, foreign currency translation is executed to prepare
financial report in group currency for consolidation purpose.

Consider the same above example, foreign currency translation is executed on 31st August

Below document gets posted as a result of foreign currency translation

Adjustment accounting entry is posted to get the exact position of balance sheet on the day of
reporting in group currency. Since this exchange rate gain/loss is unrealized (hypothetical) hence
adjustment accounting entry is reversed with posting date in next month.

Standard practice is to run foreign currency translation on last day of the month (after foreign
currency valuation is complete) which post adjustment accounting entry on last day of the month
and reverse the same on first day of next month.

Till now we have been discussing about unrealized gain/ loss which gets originated due to
change in currency exchange rates. So the next question, what happens to the realized exchange
gain/loss amounts when open item is cleared?

How sap treats realized exchange rate difference amount?

Example:
Let’s say vendor payment is being done on 10th September.

♦ Currency exchange rate on 10th September: 72 INR = 1 USD & 1GBP= 1.6 USD

(Currency exchange rate type has reference currency USD)

Payment amount is 100 GBP.

Invoice will get cleared with payment document and an adjustment accounting entry will get
posted as below
In this example, impact of exchange rate change is realized (vendor open item has been cleared)
hence no need to post reversal of adjustment accounting entry. Reversal entry is posted for
unrealized exchange gain or loss.

What are the accounts relevant for foreign currency valuation?

Accounts which are managed on open item basis and have foreign currency transaction. E.g.
clearing accounts, GR/IR clearing account, reconciliation account etc.

Accounts which are not managed as open item and have foreign currency transaction e.g. Bank
accounts, sales account etc.

What configuration is needed for foreign currency valuation and

translation?
Below shows place where account determination is maintained for accounts which are managed
on open item basis:

Account determination for GL accounts which are not managed on open item basis but are
relevant for foreign currency valuation.
 SAP Foreign Currency
Valuation Process

It is common practice for organizations to conduct transactions in currencies different

from their local/company code currency. This is what is referred to as Foreign Currency
Transaction.
Where open items denominated in foreign currency exist at a key date (meaning
weekly, monthly or yearly closing date), then they have to be evaluated to determine the
exchange gain/loss (exchange rate movement) arising therefrom. A foreign currency
valuation (Forex valuation) is nothing but restating the value of your foreign currency
balances (assets and liabilities) by comparing the exchange rates at the time of the
creation of the open item (Original Document generation) to the rate existing at the key
date.

In this week’s posts we will be discussing the topic of SAP Foreign Currency valuation,
by going through the following:

1) Scope of Foreign Currency Valuation

Generally, currency valuations covers the following
a) Customer open items, Vendor open items and General Ledger Open Line items,
Managed in foreign currency.
b) Other General Ledger Balance Sheet Accounts Managed in Foreign Currency, but
not flagged as open item management accounts.

2) Valuation Methods
The valuation method basically contains the relevant parameters in the valuation
process. In this step we make all the specifications necessary for the SAP valuation
program to run.
You set up Valuation methods by going through the menu path below:
IMG — Financial Accounting (New) — General Ledger Accounting (New) —
Periodic Processing – Valuate — Define Valuation Methods
You can create your own valuation method by clicking on New Entries, or copy and
existing one by clicking on copy, or use a system provided one.
Click on New Entries

a) Valuation Method: Enter a key that will represent your valuation method. This is a
maximum of four character alpha-numeric key.

b) Lowest value principle: flagging this indicator means that the items are valued
according to the lowest value principle. Meaning that the valuation result is only taking
in to account, if the valuation difference between the local currency amount (of the
foreign currency transaction) at the original document creation and the newly revalued
amount is negative, that is valuation run resulted in a loss. With this procedure, the
valuation is calculated per item total, and items with same invoice reference are viewed
together.
c) Strict lowest value principle: flagging this indicator means the valuation is only
displayed if, the new valuation result has a greater “devaluation and/or a greater
revaluation” than the previous valuation. Just like the above, the valuation is calculated
per item total, and items with the same invoice reference are viewed together.

d) Always evaluate: Flagging this indicator means all foreign currency balances and
foreign currency open item are valuated and the revaluation result is booked
irrespective of what the result is (loss or gain).

e) Revaluate Only: If this indicator is selected, it means that the system only takes the
valuation run into consideration if it results in a gain. That is “Revalue Only – Do Not
Devalue”. This is the opposite of the “Lowest value principle”.

f) Group Vendors: Here Vendor accounts are categorized into groups, and during the
valuation process the group is then viewed as a whole and the same conditions apply to
them.

g) Group Customers: Here Customer accounts are categorized into groups, and
during the valuation process the group is then viewed as a whole and the same
conditions apply to them.

h) G/L Valuation Group: Here General Ledger accounts are categorized into groups,
and during the valuation process the group is then viewed as a whole and the same
conditions apply to them.

i) Balance Valuation: If this indicator is selected, open items are balanced per account
or group and currency. The balance is then valuated and the valuation difference is
posted as an expense or revenue. If you do not select this indicator, the open items are
summarized and valuated per reference number. If there is no reference number, each
line item is valuated individually.

j) Post per line item: If this indicator is selected, revaluation is done at line item level.
Meaning that a line item is generated for each valuated item in the valuation posting as
well as in the adjustment account. If not selected, the valuation results are posted in a
summarized form

k) Document Type: Enter the document type that the revaluation postings will use.

l) Exchange Rate Type: Select your exchange rate type for the revaluation process.
Normally the standard exchange rate type “M” (Standard translation at average rate) is
used, although you can use any custom exchange rate type you defined.

3) Valuation Areas
By defining your valuation areas, you can report different valuation approaches and post
to different accounts. In this IMG activity, you define your valuation areas for your
closing operations. The valuation method we defined above will be assigned to our
valuation area we will define in this step.

Follow the menu path below to define your valuation area (s).
IMG — Financial Accounting (New) — General Ledger Accounting (New) —
Periodic Processing – Valuate — Define Valuation Areas

Click on new entries or copy and existing valuation area.

Specify a key to represent your valuation area, assign your valuation method to it and
select a suitable currency type (we select the company code currency).

4) Assignment of Accounting Principle to Ledger Group

In this IMG activity, we assign our adopted accounting principle to our ledger group.

Follow the menu path below to Assign Accounting Principle to Ledger Group.
IMG — Financial Accounting (New) — General Ledger Accounting (New) —
Periodic Processing – Valuate — Check Assignment of Accounting Principle to
Ledger Group
Click on New Entries.

Enter your adopted accounting principle (in our example GAAP) and select a target
ledger (in our example leading ledger-0L).
Save your entries.

5) Assign Accounting Principle to your Valuation Areas

In this IMG activity, you assign your adopted accounting principles to your valuation
areas.

Follow the menu path below to assign your adopted accounting principles to your
valuation areas.
IMG — Financial Accounting (New) — General Ledger Accounting (New) —
Periodic Processing – Valuate — Assign Valuation Areas and Accounting
Principles
Click on new entries.

Select your defined valuation area and your adopted accounting principle, and save
your entries.

6) Activate Delta Logic

The valuation process can take two forms:
a) The so called “Gross Method”, by which the program compares the exchange rate
existing on the date of the original document creation to the exchange rate prevailing on
the Key Date, and any difference booked as exchange difference. With this approach
valuation results are reset on the first day of the following period (Key Date+1)
b) The Delta Logic: with this approach valuation results are not reversed on key date
+1. The delta logic ensures that the system does not execute any reversal postings for
the valuation postings in the following period. The next valuation run takes the
difference between the last valuation date and the current key date.

If it is required for you to use the Delta valuation Logic, activate it through the following
the menu path below:
IMG — Financial Accounting (New) — General Ledger Accounting (New) —
Periodic Processing – Valuate — Activate Delta Logic
Select you valuation area (in our case Z1)
To activate the delta logic for the valuation area, set the indicator for the delta logic.

7) Prepare Automatic Postings for Foreign Currency Valuation

In this activity, we define how, and to which accounts, the valuation results are posted.
The system reads the settings done here to determine how to automatically Post
Exchange rate differences when valuating open items and foreign currency balances.
In the same configuration step we can also define the accounts for realized exchange
rate differences during open item clearing.

You can also define here the Exchange Rate Key to which you assign the gain and
loss accounts for posting any exchange rate differences that occur during valuation. The
exchange rate keys you define here are entered in the master records of the G/L
Accounts that you want to valuate.

Follow the menu path below to configure automatic postings for Foreign Currency
Valuation.

IMG — Financial Accounting (New) — General Ledger Accounting (New) —

Periodic Processing – Valuate — Foreign Currency Valuation — Prepare
Automatic Postings for Foreign Currency Valuation
a) Double click on “Exchange rate difference using exchange rate key” to define the
exchange rate key and assign the gain and loss G/L accounts to it, for the posting any
exchange rate differences.
Click on Create, and make the relevant entries.
Save your entries.

The next step is to assign to the relevant G/Ls (in the G/L Master data) an Exchange
Rate Key created above. That assignment means that any exchange rate difference
from transactions on this G/L will be posted to these accounts as configured above.
Use transaction FS00 to do this assignment.
b) Double click on “Exchange Rate Dif.: Open Items/GL Acct” to maintain settings for
automatic Post of Exchange rate differences when valuating open items and foreign
currency balances, or use transaction OB09.
Click on new entries.
Maintain your entries and save.

Exchange rate difference realized: This is an exchange rate difference which results
at the point of clearing an open item (example through incoming or outgoing payments).
Maintain here the P&L account that the realized differences are to be posted. Note that
this can be a single account, or a different account for gain and another for loss. The
offsetting postings are done on the relevant G/L account.

Valuate: You maintain here the accounts to be posted to incase of unrealized

exchange differences arising from the valuation process. When you valuate open
items in foreign currency, the exchange rate difference determined is posted as an
unrealized exchange rate difference.

Note: the Field Balance Sheet Adjustment Account contains the G/L Account that is
posted to instead of the account itself that is being evaluated. This is necessary to
maintain the original value of this account, because valuation differences are unrealized
differences. The offsetting postings go to the relevant P&L Accounts.

c) Double click on “Payment difference for Altern. Currency” to maintain settings for
automatic Posting of Payment differences.
Maintain your settings and save.

8) Foreign Currency Valuation Run

We can now run the currency valuation transaction after the configuration settings
above.
Go through the menu path below:
Accounting – Financial Accounting — General Ledger — Periodic Processing —
Closing – Valuate — Foreign Currency Valuation (New).
Or use transaction FAGL_FC_VAL
9) Resetting Foreign Currency Valuation Run
If for whatever reason you want to undo/reset the valuation postings you have made,
you can do so. What you just need to do is to run the valuation program again entering
the same selection parameters as the valuation run, but this time flagging the field reset,
as below. What this does is to recreate the status before the valuation run, that is, all
valuations posted are set to zero by an inverse posting.
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How to Configure Foreign Currency Valuation – Steps

Foreign currency valuation is to be done for preparing the financial statements at a key date. Documents
posted in foreign currencies have to be converted to company code currency for preparing the company
financial statements. Your company financial statement can include only those transactions which are posted
in company code currency.
Hence all the postings which are open items and items which are posted in GL accounts with foreign
currency have to be evaluated in company code currency. Valuation is performed at the exchange rate on the
valuation date. In that way gain or loss is calculated and posted to exchange rate gain/loss accounts.
Configure Foreign Currency Valuation
Relevant Customizing for Foreign currency valuation in SPRO -> OB59 & OBA1.
1. Use Tcode OB07 to configure the Exchange rate type,
say B – Bank selling, G – Bank buying & M Average rate.
2. Use Tcode OBBS to maintain a translation ratio for the 2 currency which you want to create, say USD :
INR.
Here you will find direct quotation & indirect quotation according to your requirement you need to maintain.
3. Use Tcode OB08 to maintain the Exchange rate, validity period of that exchange rate.
To record the profit & loss gained through the difference in exchange rate, you can do that through the
following steps
1.Use Tcode OB59 to configure valuation method, in the screen check the check boxvaluate all the time &
do the remaining settings.
2. create 2 G/L a/c 1 to record profit & other to record loss incurred through exchange rate, that should be
auto posting.
3. Use Tcode OBA1 to assign those G/L to automatic posting.
Give your chart of account and 2 G/L you have created.

Foreign Currency Revaluation in SAP: Month

End Closing
Before creating Financial Statements , we have to perform Foreign Currency
Valuation for the Transaction done in Foreign Currency .

These transactions can be bills receivables or bills payable or might be inter

company money transfers which involves G/L Accounts , Customer or Vendor.

The Line items can be open or cleared .

For the Line items which are cleared the exchange rate would be that of the date on
which it is cleared .

For Open Items which are not yet cleared the exchange rate may be considered as
the current rate or can be considered as month end exchange rate and can be
carried out as a monthly closing activity .

So at the year end ,there could be some revenue or expense due to exchange rate
fluctuations which will be reflected in the Financial Statements.

Expense and Revenue Accounts for exchange Rate differences can be maintained
in Customizing transaction code SPRO. In the SAP we can carry out Foreign
Currency Revaluation in the following manner :

Step 1) Enter Transaction Code F.05 in the SAP Command Field

Step 2) In the next screen , Enter the Following

1. Enter Company Code for which Foreign Currency Valuation is to be carried

out
2. Enter Evaluation Key Date
3. Enter Valuation Method for Exchange Rate Consideration
4. Enter Valuation in Currency Type ( Default is 10 : Company Code Currency)
5. You can filter out Valuation activity by entering appropriate parameters in the
Tab Screens.

Press Execute
Foreign Currency Revaluation in SAP: Month
End Closing
Before creating Financial Statements , we have to perform Foreign Currency
Valuation for the Transaction done in Foreign Currency .

These transactions can be bills receivables or bills payable or might be inter

company money transfers which involves G/L Accounts , Customer or Vendor.

The Line items can be open or cleared .

For the Line items which are cleared the exchange rate would be that of the date on
which it is cleared .

For Open Items which are not yet cleared the exchange rate may be considered as
the current rate or can be considered as month end exchange rate and can be
carried out as a monthly closing activity .

So at the year end ,there could be some revenue or expense due to exchange rate
fluctuations which will be reflected in the Financial Statements.

Expense and Revenue Accounts for exchange Rate differences can be maintained
in Customizing transaction code SPRO. In the SAP we can carry out Foreign
Currency Revaluation in the following manner :

Step 1) Enter Transaction Code F.05 in the SAP Command Field

Step 2) In the next screen , Enter the Following

1. Enter Company Code for which Foreign Currency Valuation is to be carried

out
2. Enter Evaluation Key Date
3. Enter Valuation Method for Exchange Rate Consideration
4. Enter Valuation in Currency Type ( Default is 10 : Company Code Currency)
5. You can filter out Valuation activity by entering appropriate parameters in the
Tab Screens.

Press Execute
Step 3) In the next screen, a list of G/L Accounts is generated which are selected for
the Foreign Currency Valuation by the Report SAPF100. It evaluates the open
items in foreign currency as well as foreign currency balance sheet accounts.
Please fallow below Details and see step by step. it should help full for you..

Purpose
This wiki provides a demonstration of valuation of Open Items In Foreign Currencies

Overview
From the help.sap.com documentation the following is stated
Valuation of Open Items in Foreign Currencies.
Use
All open items in foreign currency are valuated as part of the foreign currency valuation:
● The individual open items of an account in foreign currency form the basis of the valuation, that
is, every open item of an account in foreign currency is valuated individually.

Example of open items are customers, Vendors, or GL accounts managed on open item
basis (SKB1-XOPVW = X)
● The total difference from all the open items in an account is posted to a financial statement
adjustment account. The account therefore retains its original balance.
● The exchange rate profit or loss from the valuation is posted to a separate expense or revenue
account for exchange rate differences as an offsetting posting.
● A valuation cannot be made by posting to the payables/receivalbes account, since reconcilation
accounts cannot be directly posted to.
 For this reason the amount is posted to an adjustment account, which appears in the same
line of the balance sheet as the reconcilation account

Step 1 - General customizing

Local currency of company EUR -
Implementation Guide: Financial accounting (New) -> Financial accounting global settings (New)
-> global Parameters for company code - Transaction code OBY6

Exchange rate 1 USD = 1,7 EUR

Implementation Guide: SAP NetWeaver -> General settings -> Currencies (check all settings) ->
Enter Exchange rates (Transaction code OB08)

Step 2 - Create Invoice

SAP Easy Access -> Accounting -> Financial accounting -> Accounts payable -> Document entry -
> FB60 Invoice
Post document
Display document posted via FB03

Change in exchange rate occurs 1 USD now equals 1,63 EUR

SAP Easy Access Screen choose -> Accounting -> Financial Accounting -> Accounts Payable ->
Accounting -> FBL1N -Display/Change Line items
Step 3 - Review of Foreign Currency Valuation customizing
Prior to performing a foreign currency valuation review of customizing:
Implementation Guide:Finanical Accounting (New) -> General Ledger Accounting (New) ->
Periodic Processing -> Valuate
Define Valuation Methods
Define valuation Areas

Define Accounting Principles

Check Assignment of Accounting princples to ledger Group
*required if you have more than one ledger

Perpare Automatic Postings for Foreign Currency Valuation

Select Transaction KDF, enter Chart of Accounts
The Target Accounts for KDB/KDF can also be defined per valuation area
Account Determination per Valuation Area
Step 4 - Perform Foreign Currency Valuation
To perform a foreign currency valuation, from the SAP Easy Access Screen, choose Accounting -
> Financial Accounting ->
General ledger/Accounts Receivable/Accounts Payalbe -> Periodic processing -> Closing ->
Valuate -> Foreign Currency Valuation (New)
Transaction FAGL_FC_VAL (Program FAGL_FC_VALUATION)
Execute
Click on Postings button
To create valuation documents create postings must be ticked on, if you execute without create
postings ticked, this means that program is run in test mode.

Valuation of Foreign Currency Balance Sheet Accounts

Use
Your foreign currency balance sheet accounts are valuated as part of the foreign currency valuation:
∙ The balance, that is, the foreign currency balance of the G/L account managed in the foreign
currency, forms the basis of the valuation for each foreign currency and foreign currency balance
sheet account.
 ∙ The result of the valuation is posted to the valuated account or to a adjustment account.
∙ The exchange rate profit or loss from the valuation is posted to a separate expense or revenue
account for exchange rate differences as an offsetting posting.

The balance of your fixed term deposit account (foreign currency balance sheet account) has a balance
of 1,000 USD and 1,700 EUR (see the following figure, 1). An exchange rate devaluation occurs at the
time of the valuation. The account balance is now valuated with an exchange rate of 1.6300. The
valuation programs posts the exchange rate difference to the fixed term deposit account and to the
account for exchange rate differences (see following figure, 2).

As a result of the valuation, a difference arises in your local currency. However, only postings in the
foreign currency specified in the master record (account currency) are permitted to foreign currency
balance sheet accounts. The exchange rate difference is therefore posted with a foreign currency amount
of zero, and a local currency amount equal to the exchange rate difference.

Prerequisites
To valuate your foreign currency balance sheet accounts, you must define expense and revenue
accounts for exchange rate differences. You can group your foreign currency balance sheet accounts and
define expense and revenue accounts for exchange rate differences for each group.
You group the accounts using an exchange rate key in the master record of the foreign currency balance
sheet accounts. In Customizing, assign the expense and revenue accounts for exchange rate differences
to this exchange rate difference key.
Make this setting in the Implementation Guide for Financial Accounting (New) under General Ledger
Accounting (New) → Periodic Processing → Valuate → Foreign Currency Valuation → Prepare Automatic
Postings for Foreign Currency Valuation. (For more information, see also under "Example").

For more information on the Customizing settings, see Foreign Currency Valuation.

Features
You have the following options when defining the expense and revenue accounts for exchange rate
differences:
∙ If you perform parallel valuations with different valuation methods, you can also use your account
determination from the valuation of open items in foreign currency for a specific G/L account. To do
this, enter the G/L account in the account determination for the valuation of open items in foreign
 currency. If you have implemented parallel ledgers, the balance of the account read from the ledger
in question and valuated.
∙ You can subsequently reverse the valuation of the balances.

Activities
∙ To perform foreign currency valuation using the report and to post the valuation difference, go to
the SAP Easy Access screen and choose Accounting →Financial Accounting → General
Ledger → Periodic Processing → Closing → Valuate → Foreign Currency Valuation (New).
∙ To subsequently reverse the postings generated during foreign currency valuation, select the same
report.
In the area For G/L Account Balance Valuation on the Foreign Currency Valuation selection
screen, set the Reverse Postings indicator. (This indicator does not affect the valuation of open
items)
∙ To perform foreign currency valuation manually, go to the SAP Easy Access screen and
choose Accounting → Financial Accounting → General Ledger →Posting → Valuate Foreign
Currency.

Example
Customizing for exchange rate difference using exchange rate difference key
You want to analyze the exchange rate profits and losses arising on foreign currency balance sheet
accounts and securities accounts in USD separately. To do this, you create in Customizing separate
expense and revenue accounts for exchange rate differences for these USD accounts. You create a joint
expense account and joint revenue account for exchange rate differences for all other currencies. You
can include the currency and the type of asset (for example, foreign exchange or security) in the
exchange rate difference key.

Exchange rate difference key Description

1USD Foreign exchanges in USD
1 Foreign exchanges in other currencies
2USD Securities in USD
2 Securities in other currencies

This example would require the following IMG entries in the activity Prepare Automatic Postings for
Foreign Currency Valuation in the process Exch. Rate Diff. using Exch. Rate Key:
 ● --------------------------------------

Valuation of Open Items in Foreign Currencies.

Use
All open items in foreign currency are valuated as part of the foreign currency valuation:
∙ The individual open items of an account in foreign currency form the basis of the valuation, that is,
every open item of an account in foreign currency is valuated individually.
∙ The total difference from all the open items in an account is posted to a financial statement
adjustment account. The account therefore retains its original balance.
∙ The exchange rate profit or loss from the valuation is posted to a separate expense or revenue
account for exchange rate differences as an offsetting posting.

You have posted a receivable in the amount of 1,000 USD, at an exchange rate of 1.7000.
The local currency is EUR. The system saves the receivable in local currency in the
customer and receivables accounts (1,700 EUR) (see following figure, 1).
An exchange rate devaluation occurs at the time of the valuation and the exchange rate is
now 1.6300. The receivable in the amount of 1,700 EUR remains in the receivables account.
The program posts the reduction to the receivable (70 EUR) to a financial statement
adjustment account and the exchange rate difference to the account for exchange rate
differences from the valuation as an offsetting posting (see following figure, 2).
The receivables account and the relevant financial statement adjustment account are
reported in one item in the financial statements. This means that the amount of the
receivable in the financial statements is the valuated amount (1,630 EUR).
Prerequisites
To valuate your foreign currency balances, you must define certain accounts. You define these accounts
per reconciliation account:
∙ Expense and revenue accounts for the exchange rate differences from the valuation
∙ A financial statement adjustment account, reported in one financial statement item with the
valuated account. The valuation is therefore not performed in the account itself, instead, it is posted
to a separate account. This is necessary for example, since the accounts for receivables and
payables are only updated by postings to the customer and vendor accounts. However, the
valuation must be performed in the G/L account area for the relevant reconciliation accounts.
You define the required accounts in the Implementation Guide under Financial Accounting
(New) → General Ledger Accounting (New) → Periodic Processing →Valuate → Foreign Currency
Valuation → Prepare Automatic Postings for Foreign Currency Valuation.

When performing a valuation of open items, you can configure account determination
according to the currency type, so that, for example, currency gains in the local currency
and in the group currency are posted to separate accounts.

Features
You have the following options for valuating open items in foreign currency:
∙ Saving the exchange rate difference per valuation area
In addition to the posting, the exchange rate differences are saved per document. This information
is then available for subsequent evaluations, for example, Transferring and Sorting Receivables
and Payables
● ○ Unrealized exchange rate differences
 When you valuate open items in foreign currency, the exchange rate difference determined is posted
as an unrealized exchange rate difference.
● ○ Realized exchange rate differences
For an incoming payment, that is, when you are clearing the open items, the current exchange rate
is determined. Since the exchange differences that were not realized are reversed, the full
exchange rate difference is posted as realized.
∙ Reversing exchange rate difference postings
The posted exchange rate differences are automatically reversed a day after the valuation run by
an inverse posting.

Activities
To perform a foreign currency valuation, from the SAP Easy Access screen,
choose Accounting → Financial Accounting → General Ledger/Accounts Receivable/Accounts
Payable → Periodic Processing → Closing → Valuate → Foreign Currency Valuation (New).

● -------------------------------------

Foreign Currency Balance Sheet Account

Definition

A G/L account that is kept in a foreign currency.

Use

You need a foreign currency account if you, for example, process payments in a foreign
currency. If you have set up a foreign exchange account at a bank, it is a good idea to manage
this FI account in that currency as well. By doing this, you can compare the transaction figures
with the account balance from the bank statement.

Structure
You mark an account as being a foreign currency account by entering the desired foreign
currency as the account currency in the master record:

● The account can then only be posted to in this foreign currency.

● The transaction figures and the account balance are kept in the foreign currency entered
and in the local currency.

● -------------------------------

Foreign Currency Valuation

Use
To create your financial statements, you have to perform a foreign currency
valuation. This valuation covers the following accounts and items:
∙ Foreign currency balance sheet accounts, that is, the G/L accounts that
you run in foreign currency.
The balances of the G/L accounts that are not managed on an open
item basis are valuated in foreign currency.
∙ Open items that were posted in foreign currency.
Open items that are open on the key date are valuated in foreign
currency.
You have the following options for the foreign currency valuation:
∙ You can perform the valuation in local currency, (company code
currency), or a parallel currency (for example, group currency).
∙ You can also use different valuation methods (for example, lowest value
principle).
∙ If you want to translate additional currencies from the local currency,
foreign currency valuation automatically performs a currency
translation according to FASB 52 (US GAAP).
Prerequisites
You have made the following settings in Customizing:
∙ You have defined exchange rates.
For more information, see Exchange Rates.
You have made the settings in Customizing for new General Ledger
Accounting under Financial Accounting (New) →•General Ledger Accounting
(New) → Periodic Processing → Valuate.
∙ Define Valuation Methods
 You have defined a valuation method here.
∙ Define Valuation Areas
Here, you have defined a valuation area and assigned a valuation
method to it.
∙ Assign Valuation Areas and Accounting Principles
If you are using parallel ledgers, you have assigned to the valuation area
an accounting principle that is also assigned to a ledger group.
The exchange rate differences from the parallel valuation are posted in
this valuation area. If you perform a parallel valuation with a different
valuation method to the first valuation, you do not have to reverse the
postings from the first valuation. This information is then available for
subsequent closing operations, for example, Transferring and Sorting
Receivables and Payables
∙ Foreign Currency Valuation → Prepare Automatic Postings for Foreign
Currency Valuation.
Here, you have defined the expense and revenue accounts for exchange
rate differences from valuations. For payables and receivables accounts
you must also define the financial statements adjustment accounts.
Features
In the new General Ledger, the report Foreign Currency Valuation
(New) (FAGL_FC_VALUATION) provides you with the following functions:
∙ Valuation of foreign currency balance sheet accounts
∙ Valuation of open items in foreign currencies
∙ Saving the exchange rate differences determined from the valuation per
document
∙ Performing the adjustment postings required

The following topics describe how to perform foreign currency

valuation using the reports, and how to post valuation differences.
You can also make this posting manually. From the SAP Easy
Access screen, choose Accounting → Financial
Accounting → General Ledger →Document Entry → Valuate
Foreign Currency.
Activities
To perform a foreign currency valuation, from the SAP Easy Access screen,
choose Accounting → Financial Accounting → General Ledger/Accounts
Receivable/Accounts Payable → Periodic
Processing → Closing →Valuate → Foreign Currency Valuation (New).