Conversion of Other assets and Other liabilities

Are you confident in the conversion of Other assets and Other liabilities denominated in foreign currencies as the balance sheet date?

Helena Šulcová

Act No. 563/1991 Coll., on Accounting in Section 4, Paragraph 12, establishes an obligation to accounting units to keep accounts in monetary units of the Czech currency.

In the case of receivables and payables, equity investments in business corporations, securities rights and registered securities and derivatives, stamps and vouchers (when denominated in foreign currency) and cash in foreign currencies, the accounting units are required to use the foreign currency as well. This obligation also applies to provisions and reserves when the related assets and liabilities are denominated in a foreign currency.

But what about recalculation of Other assets and Other liabilities? The Czech accounting legislation does not provide clear information about that. Therefore, on 14 May 2018, the National Accounting Board approved the interpretation No. 37, which provides us with an answer and also a very logical and simple explanation.

In the case of unpaid expenses and unpaid income of the current period, when the payment or the receipt will be realized in the following accounting period and which is accounted as Accrued income and Accrued expenses , it is considered as a foreign currency liability, and a foreign currency receivable. For these accounts same rules apply the as for receivables and payables. Therefore, the balance of both accounts should be recalculated as at the balance sheet date using the Czech National Bank exchange rate valid as at the balance sheet date, similarly as closing balances of other receivables and payables denominated in foreign currencies.

In the case of prepaid expenses and prepaid income related to the following accounting period booked as Deferred Expense and Deferred Income, the cash flow was already realized. For this reason, the closing balances of these accounts are not recalculated as at the balance sheet date.