Foreign Currency Adjustment

The foreign currency adjustment is often a source of confusion when creating the income statement and balance sheet.  The entry is used to offset the change in the value of the total assets resulting from the fluctuation in exchange rates.  The current adjustment is added to or subtracted from the entry in the equity section of the balance sheet so that the sheet will balance.  The change is also shown in the consolidated section of the income statement indicating a change in the value of the company resulting from the exchange rate fluctuation.

The value for the foreign currency adjustment can be obtained by translating the value of the foreign country total assets from the previous quarter's balance sheet to Merica's currency, then translating that value to the foreign country's currency using the current quarter's exchange rate.  Take the difference between the two foreign currency values and divide it by the current exchange rate.  The result should equal the foreign currency adjustment.