According to GAAP, goods shipped with a foreign currency-denominated invoice use the ________ to record the value of the sale in the local currency.
A) beginning of the year exchange rate
B) average year-to-date exchange rate
C) spot rate on the day of the transaction
D) actual spot rate at time of future payment

Question

Quizplus · Accepted Answer

According to GAAP, when goods are shipped with a foreign currency-denominated invoice, the spot rate on the day of the transaction should be used to record the value of the sale in the local currency. This is because the spot rate reflects the current exchange rate at the time of the transaction and provides the most accurate representation of the transaction's value in the local currency. Using either the beginning of the year exchange rate or the average year-to-date exchange rate would not provide an accurate representation of the transaction's value, as exchange rates can fluctuate throughout the year. Using the actual spot rate at the time of future payment would also not be appropriate, as the transaction has already occurred and the value of the sale must be recorded at the time of the transaction.

According to GAAP, Goods Shipped with a Foreign Currency-Denominated Invoice