Preserve each exchange-rate date for foreign-currency advances

A payment made before delivery can create a right to goods or services, a right to cash repayment or another arrangement. Read the contract and obtain the accountant's classification. The word deposit in a bank description does not establish whether the resulting balance is monetary or nonmonetary.

IFRIC 22 addresses qualifying foreign-currency advances that create a nonmonetary asset or liability before the related asset, expense or income is recognized. For the covered amount, the relevant transaction date comes from initial recognition of that advance balance. Other balances and excluded measurement circumstances require separate assessment.

Record the contract, currency amount, payment or receipt reference, approved recognition date and rate source. Link each advance to the portion of goods or services it covers. Keep invoice dates, bank settlement dates and accounting recognition dates in separate fields when they differ, with the reason for the approved date documented.

When there are several advances, IFRIC 22 requires a transaction date for each payment or receipt within its scope. An aggregate balance converted at the most recent rate loses that history. Preserve the individual installments even when the supplier or customer later issues one combined invoice.

Assume a dollar-functional-currency business makes two qualifying nonmonetary advances for one purchase. The first is €4,000 at an approved rate of $1.10 per euro, giving $4,400. The second is €6,000 at $1.20 per euro, giving $7,200. The two recorded advance amounts total $11,600.

When those advances are applied, retain the amounts associated with the respective installments. A delivery-date rate of $1.25 would convert the combined €10,000 to $12,500, but using it for the entire prepaid portion would discard the assumed IFRIC 22 dates. This example illustrates only the covered advance component; other asset costs, unpaid consideration and measurement requirements need their own treatment.

If the transaction is only partly prepaid, identify the unpaid portion independently. Give the accountant its recognition and settlement evidence rather than extending the prepayment's rate to the whole transaction. Likewise, distinguish a payment provider's fee or conversion spread from the reporting rate used for the approved accounting measurement.

Reconcile the original-currency contract amount, advances applied, remaining obligations and cash settlement. Preserve differences with their actual explanations. A residual should not be posted automatically as exchange gain or loss when it could arise from a missing installment, a reversed rate direction or a supplier credit.

Route cancellations, refund rights and reassigned advances for review because the nature of the balance may change. Keep the earlier recognition evidence and document any approved reclassification. Before closing the transaction, trace each installment from the advance ledger to the resulting asset, expense or income so a later system update cannot silently replace its historical rate.