How to record foreign currency supplier invoices
Keep the original currency amount and its accounting conversion alongside each invoice, deposit and refund. Match payments to supplier balances, separate fees from exchange differences, and ask your accountant to classify advances before revaluing them. Cambridge China Bridge can help assemble the supplier documents.
Agree the accounting basis before entering invoices
Ask your accountant to confirm your accounting framework, functional currency and recognition date. The workflow below assumes accrual accounts with sterling as the functional currency. HMRC explains that foreign currency transactions are initially recognised using the spot rate at the recognition date. Do not automatically use the payment date or assume the date printed on an invoice determines recognition.
Record the supplier, invoice reference, original currency amount, recognition date, exchange rate, rate source and sterling value. Ask which purchase, stock or asset account to use. Keep the original document attached to the entry. For checks on the document itself, use our guide to reading a Chinese proforma invoice.
Track deposits without counting the purchase twice
Keep a deposit schedule linked to the order, showing its currency, payment date, sterling amount and what the payment secures. Ask your accountant whether it represents an advance towards goods or a right to receive money back. Supply the agreed refund terms rather than letting the software decide from the word “deposit”.
The distinction matters: monetary balances are retranslated at the closing rate, while non-monetary items measured at cost retain the transaction-date rate. Ask your accountant to classify each advance before applying that treatment. When entering the final invoice, show how the deposit is applied and check that the advance has not also been counted as a separate purchase. Payment safeguards are covered in paying Chinese suppliers safely.
Separate settlement differences from bank fees
Match each payment to the invoice or advance it settles. Keep the foreign currency transferred, sterling debited, conversion confirmation and separately stated charges. Compare the sterling settlement amount with the carrying value of the liability being cleared. Investigate any remaining balance before writing it off: it may reflect a fee, short payment, credit or exchange movement.
Exchange differences on settlement of monetary items generally go to profit or loss. At the accounting period end, outstanding foreign currency monetary balances are retranslated at the closing rate, with differences generally recognised in profit or loss. Give your accountant unpaid supplier balances and foreign currency bank statements, including balances that have not yet produced a cash gain or loss.
Link refunds to the original transaction
Ask the supplier for a credit note or written refund confirmation stating the order, reason, currency and amount. Keep the agreement and bank receipt together. Tell your accountant whether the refund cancels an advance, reduces a goods invoice or settles a separate claim. Ask them to clear or adjust the original balance rather than entering every receipt as sales income.
Reconcile the amount promised with the currency received and any deductions. If a monetary refund receivable has been recognised, apply the monetary-balance treatment described above. Give the accountant the date the refund was agreed as well as the receipt date, especially across an accounting period end. For the evidence behind a quality claim, see faulty goods and supplier claims.
Give your accountant a complete reconciliation
Prepare an order file containing the contract, proforma and final invoices, delivery evidence, deposit allocation, credit notes, refund correspondence, bank statements and conversion confirmations. Add a schedule connecting each original currency amount to its sterling entry, settlement and remaining balance. Flag disputed deposits, missing documents and currency contracts for review.
Limited companies must retain financial records, information and calculations needed to prepare their annual accounts and Company Tax Return. Keep the accounting rate calculation separately from the customs conversion, and ask your customs broker to confirm the applicable customs exchange-rate method and rate. Ask your accountant to reconcile customs and import VAT documents separately from the supplier ledger.
Frequently asked questions
Which exchange rate should I use for a supplier invoice?
For initial recognition, use the spot rate at the recognition date under the applicable accounting framework. Agree that date and the rate source with your accountant; do not automatically use the payment or customs rate.
Should I revalue a foreign currency supplier deposit?
Ask your accountant to classify it first. Monetary balances use the closing rate at period end; non-monetary items measured at cost retain the transaction-date rate. Provide the order and refund terms.
Why does my sterling payment differ from the invoice entry?
Check exchange movement, separately stated bank charges, short payments and supplier credits. Match the payment to the recorded liability and explain the difference rather than changing the original entry to force a match.
How do I record a refund from an overseas supplier?
Link the receipt to the original advance, invoice or claim. Give your accountant the credit note or refund agreement, agreement date, currency amount, bank receipt and deductions so they can adjust the correct balance.