Foreign-Currency Bookkeeping: From Invoice to Payment
Convert a foreign-currency invoice into Canadian dollars, then see how to record an exchange gain and a separate bank fee when payment arrives.
A US-dollar invoice and its eventual Canadian-dollar bank deposit will not necessarily be equal after conversion. That difference is not automatically a fee, an error, or extra sales revenue. First identify what was owed, which rate supported the original entry, and what happened when the customer paid.
This explainer assumes Canadian-dollar books and an accrual-based sale. It leaves out sales-tax calculations to keep the currency arithmetic visible. Omitting tax from an example does not mean a foreign customer automatically makes a supply tax-free.
Read the exchange-rate direction first
The Bank of Canada publishes daily reference rates expressed as Canadian dollars per unit of foreign currency. If the illustrative quote is CAD 1.34 for USD 1, multiply the US-dollar amount by 1.34 to obtain Canadian dollars. Dividing would answer a different conversion question.
Write down both currencies and which way the rate works. “Rate: 1.34” does not give enough information for someone to check later. Also keep the published reference rate separate from the bank or payment provider's actual conversion rate. That rate can include a spread: a difference built into the rate offered to you.
Record the original sale with its support
In a wholly fictional example, a Canadian business invoices USD 3,750 on March 4, 2026. Assume its applicable recording policy uses an illustrative rate of CAD 1.34 per USD on that date. These are invented rates, not historical Bank of Canada quotations.
USD 3,750 × CAD 1.34 per USD = CAD 5,025. The simplified initial entry records a CAD 5,025 receivable and CAD 5,025 of revenue.
Retain the invoice's foreign-currency face amount, date, exchange-rate source, and CAD calculation. Keeping only the converted amount makes later settlement harder to reconcile. The invoice should remain identifiable in its original currency even though the reporting books use Canadian dollars.
Your method must follow the accounting and tax rules that apply to your business. A daily rate, the rate for a specific transaction and an average rate are not always interchangeable. Even a reliable rate source can be used in the wrong way.
Separate settlement movement from fees
Suppose the full USD 3,750 is settled on April 9, 2026, at an illustrative CAD 1.37 per USD, with no intervening remeasurement in this simplified example. The gross settlement value is CAD 5,137.50. A separately identified CAD 22.50 processing fee leaves CAD 5,115 deposited.
| Component | Calculation or amount |
|---|---|
| Original receivable | $5,025.00 |
| Gross settlement | USD 3,750 × 1.37 = $5,137.50 |
| Currency gain | $5,137.50 − $5,025.00 = $112.50 |
| Separate processing fee | $22.50 |
| Cash deposited | $5,137.50 − $22.50 = $5,115.00 |
The settlement entry can be understood as debits of $5,115 to cash and $22.50 to fees, offset by credits of $5,025 to receivables and $112.50 to currency gain. Both sides total $5,137.50. Recording the net bank deposit as another sale would duplicate revenue.
Review balances that remain open
If an invoice is still unpaid when you prepare financial reports, the accounting rules may require you to update its Canadian-dollar value. This is separate from recording payment. When payment arrives later, calculate the gain or loss from the correct value then in the books, not automatically from the original invoice entry.
Partial payments, foreign-currency bank balances, refunds and unpaid supplier bills need extra checks. In this example, a stronger US dollar helps the seller receive more Canadian dollars. If you owe a supplier instead, a change that makes the Canadian-dollar payment larger generally works against you. Follow who owes whom before labelling the difference a gain.
For a foreign-currency expense, start with the supplier document and the relevant recording date, then distinguish the liability from its eventual payment. A card statement may show a CAD charge, a separate fee, or both. Preserve those details rather than replacing them with a later web quotation that happens to give a cleaner number.
If the chosen reference source has no quotation for a transaction date, follow a documented, appropriate policy for that situation and obtain review where needed. Do not silently substitute a convenient date. The working paper should explain the exception well enough for someone else to reproduce it.
Write down a method someone else can follow
- Record original currency, amount, transaction date, and document reference.
- Document the approved source, quote direction, and rate-selection method.
- Keep settlement statements and identify separately disclosed fees.
- Reconcile open foreign-currency amounts as well as CAD balances.
- Have material balances, reporting-date adjustments, and tax differences reviewed.
Bookwits can coordinate missing invoices and reviewer questions, but it does not convert ledger entries or connect to a bank for this calculation. Functional-currency elections, hedging, and complex international tax issues need advice beyond this basic example.
Frequently asked questions
Can I always use an annual average exchange rate?
No. The appropriate method depends on the transaction, applicable reporting rules, and tax requirements. Document the policy and obtain review rather than assuming an average fits every balance.
Is the difference between the invoice and deposit entirely a bank fee?
Not necessarily. Separate currency movement, explicit fees, partial payments, and other deductions using the settlement evidence. A net deposit alone does not explain the difference.