In Zuora Revenue, there are primarily four scenarios of foreign exchange management where Zuora Revenue provides reports in different currencies for you to view and translate into revenue values for each scenario:
- Sales Order vs. Invoice
- Invoice vs. Credit Memo
- SSP Allocations in Multi-Currencies Revenue Contract
- Posting to General Ledger
As each scenario is important in foreign exchange management, we will separate the topic into a two-part series part 1 will focus on sales order vs. invoices and invoice vs. credit memo this month (September) and part 2 in November will round out the series with SSP allocation in multi-currencies revenue contract and posting to the general ledger.
Foreign Exchange in Revenue - Part 1
Sales Order vs. Invoice and Invoice vs. Credit Memo. Part 2 in November.
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Terminologies and Definitions
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The column headers are abbreviated in the example tables as follows:
- T.Curr: Transaction currency
- F.Curr: Functional currency, which is the book currency.
- G.Curr: Reporting currency.
- F.Ex.Rate: Functional exchange rate is the exchange rate from the transaction currency to the functional currency.
- G.Ex.Rate: Reporting exchange rate, which is the exchange rate from the functional currency to the reporting currency.
Notes:
T.Curr, F.Ex.Rate and G.Ex.Rate are sourced from upstream systems upon transactional data (SO/INV/CM) is collected into Zuora Revenue. This is to ensure that accounting E2E are using the same exchange rate.
G.Ex.Rate can also be uploaded to adjust Reporting at the end of the period. Link to Knowledge Center.
Conversion Methodologies
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As per general Financial Reporting requirement, Zuora Revenue convert currencies in the following ways:
- T.Curr: Transacting currency
- F.Curr:T.Curr X F.Ex.Rate
- G.Curr: F.Curr X G.Ex.Rate
Notes:
- All accounting journal entries are generated based on the T. Curr.
- F.Curr and G.Curr entries are only populated using the above formulas for reporting and UX presentations.
- Reversing transaction generated from upstream system is expected to have the same F.Ex.Rate and G.Ex.Rate as their respective originating transaction to avoid fx variances.
Foreign Exchange (FX) Examples
Example 1: SO to Invoice Conversion
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Scenario:
In a single transaction line, when the order was booked, it was having F.Ex Rate as 1.07 but when the line got invoiced, the invoice was transacted with F.Ex Rate 1.10. There is a 0.03 FX Gain for each $1 invoiced. In Zuora Revenue, the accounting will absorb the FX gain/loss into revenue.
Based on company policies, the FX gain loss amount may or may not be appropriate to be absorbed into revenue. With that said, Zuora Revenue’s Unbill FX Report is provided to customers for identifying the FX Gain/Loss amount. Customers can choose to reclass the amount using MJE or their GL Journal Entry.
How to Manage: Unbilled FX Report
To identify the amount of FX gain/loss absorbed in revenue for the period, the Unbill FX Report will provide the information. It has the listing of transactions with differences in exchange rates from revenue recognized prior to billing and subsequently invoiced for potential FX gain/loss
Example 2: Invoice to Credit Memo with Originating Transaction Reference
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Scenario:
In the same transaction line in Example 1, a credit memo against the invoice in a later date and is transacted with F.Ex Rate as 1.1, there is no FX gain/loss generated, hence, Contract Liability account is also cleared. No adjustment required.
Example 3: SO to Reduction Order Conversion
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Scenario:
In the same transaction line in Example 2, a return order (RORD) against the original order in a later date and transacted with F.Ex Rate as 1.07. Since it is a return order, Zuora Revenue will create journal entries with the original order rate, hence, there is no FX gain/loss generated, and the Contract Liability account is also cleared. No adjustment required.
Example 4: Invoice to Credit Memo Which Reduces Order Directly - FX Gain/Loss Stuck in Contract Liabilities
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Scenario:
In the same transaction line in Example 1, multiple invoices with various F.EX Rates are created, then followed by a credit memo that directly reduces the order. All transactions are now at different rates. Multiple FX gain/loss amounts are generated overtime and now the Contract Liability account is not clearing in the Functional Currency even though balance in Transactional Currency is $0.
Example 5: Invoice to Credit Memo Generated for Return Order Without Originating Invoice Reference
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Scenario:
In the same transaction line in Example 3, after the return order (RORD), a credit memo is transacted using the same F.Ex Rate as the invoice F.Ex Rate of 1.07. Since the invoice and the credit memo are transacted with the same F.Ex Rate, there is no FX gain/loss generated, and the Contract Liability account is also cleared. No adjustment required.
Example 6: Invoice to Credit Memo Generated for Return Order Without Originating Invoice Reference - FX Gain/Loss Stuck in Contract Liabilities
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Scenario:
Similar to Example 5, after the return order (RORD), a credit memo is transacted, but using a different F.Ex Rate to the invoice F.Ex Rate of 1.07. Since the invoice and the credit memo are transacted with the different F.Ex Rate, there is FX gain/loss generated, and now the Contract Liability account is not clearing in the Functional Currency even though balance in Transactional Currency is $0.
How to Manage:
- Since Zuora Revenue is dependent on upstream booking and billing systems for the F.Ex Rate, we recommend customers to ensure that the F.Ex rate used in the upstreams system can support the above scenarios using appropriate rate.
- Reversing transaction generated from upstream system is expected to have the same F.Ex.Rate and G.Ex.Rate as their respective originating transaction to avoid fx variances.
Additional References
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