A U.S. company makes a sale to a foreign customer with payment receivable in 30 days in the customer's currency. The sale would be recorded by the U.S. company on the date:
A)Of sale using a projected estimate of the U.S.dollar value at payment date.
B)Of sale using a 30-day average U.S.dollar value.
C)Of sale using the current dollar value.
D)Of sale using the foreign currency value.
E)When payment is received.

Question

Quizplus · Accepted Answer

The sale should be recorded on the date of sale using the current dollar value. This is because the accounting principle of historical exchange rates requires that transactions be recorded using the exchange rate in effect at the time of the transaction. Recording the sale using a projected estimate or a 30-day average would violate this principle, while recording it using the foreign currency value would not accurately reflect the U.S. company's financial position. The payment receivable in the foreign customer's currency should be recorded as an accounts receivable in the U.S. company's books and will only be realized when payment is received.

A US Company Makes a Sale to a Foreign Customer with with Payment