AFM491 Lecture Notes - Lecture 18: Operating Surplus, Financial Statement, Exchange Rate

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM491
• Professor: Robert Ducharme

Document Summary

Functional currency that is not of the country where the company is conducting economic activity: different from financial reporting entity, purchase and sale level, exchange rate: price of one currency in terms of another currency. Currencies: denominated, transaction is denominated, recording currency. Functional currency: primary economic environment in which the entity operates, where is the economic activity happening, presentation currency, financial statements presented. Functional currency approach: each entity determines its own functional currency, under the consolidated group, must translate into parent"s functional currency for consolidation adjustments, primary economic environment. Factors: sales price, where sales cost, operating costs. Inputs, labour, materials sourced: competition and regulation, market. Interaction: financing, debt and equity instruments, operating surplus, excess cash retained. Foreign currency transactions: buying and selling goods/products, sales, inventory, cogs on income statement, ar/ap, buying and selling assets, borrowing and lending money, how to translate into the appropriate functional currency.