Realized profit and unrealized profit are other income in nature. And unrealized loss and realized loss are other expenses in nature.

Example: Your company currency is CAD and record a sale on the date you sold goods (take CAD 10 = 1 USD).

Sale Date: 01-01-09

Sales in CAD 100

Rate on date, sale is recorded CAD 10 = 1 USD

Sale in USD 10

Sales Entry will be:

DR          Accounts receivable       100

CR                           Sales                                      100

Customer was billed in USD which was on 01-01-09 equals to 10.

On 01-02-09 customer paid for invoice in USD, he paid USD 10. On that day, currency rate was               CAD 11 = 1 USD. This means that we have to record entry of CAD 110 in our books.

In this case we will use Realized Profit a/c and the entry would be:

DR          Cash 110

CR                                           Accounts receivable  100

CR                                           Realized Profit A/C           10

Realized Profit 10 is the gain on currency exchange rate.

Similarly, if exchange rate decreases Realized Loss A/C will be debited.

Unrealized Profit and Loss A/C s are used if company takes provision of change in exchange rate into accounts.

Have a nice day!!

Written By: Akhwand Usman Tufail