Who it's for: anyone closing the books for a SaaS company that holds foreign currency bank accounts, bills customers abroad or pays overseas suppliers.
What you'll get: which balances get revalued and which don't, a step-by-step month-end process, a full worked example with journals, realised vs unrealised gains explained, and a one-slide summary to take to your boss.
Reading time: about 10 minutes. Have last month's revaluation open alongside it.
Why FX revaluation matters
If you hold dollars, euros or any other foreign currency, the pound value of those balances changes every day, whether anyone touches them or not. Month-end revaluation brings the balance sheet up to date at the closing rate, so your cash, debtors and creditors show what they're worth now, not what they were worth when they were booked.
Get it wrong and the balance sheet drifts from reality, the P&L picks up surprise gains and losses in the wrong month, and the bank reconciliation for your dollar account never quite works. Exchange rates are the one part of the close nobody in finance controls, which is either humbling or relaxing depending on your outlook.
Key terms
- Functional currency: the main currency an entity operates in. For a UK company, usually pounds sterling.
- Foreign currency: any currency other than the functional currency.
- Monetary items: balances that will be received or paid as a fixed number of currency units, such as cash, trade debtors, trade creditors, loans and accruals. These are revalued.
- Non-monetary items: balances that won't be settled in cash, such as prepayments, deferred revenue, fixed assets and inventory. These stay at the rate on the day they were booked (the historical rate).
- Closing rate (spot rate): the exchange rate at the balance sheet date.
- Unrealised gain or loss: the change in value of a balance you still hold or still owe.
- Realised gain or loss: the difference that crystallises when the balance is actually paid or received.
What gets revalued, and what doesn't
Under IFRS (IAS 21) and FRS 102 (Section 30), foreign currency monetary items are retranslated at the closing rate at each reporting date, with the difference taken to profit or loss. Non-monetary items measured at historical cost are left at the rate on the transaction date.
| Balance | Monetary? | Revalue at month-end? | Why |
|---|---|---|---|
| Foreign currency bank account | Yes | Yes | It is cash in a fixed number of dollars or euros |
| Trade debtors in foreign currency | Yes | Yes | You'll receive a fixed amount of that currency |
| Trade creditors and accruals in foreign currency | Yes | Yes | You'll pay a fixed amount of that currency |
| Intercompany balances in foreign currency | Yes | Yes (see the intercompany guide for the long-term loan exception) | They will be settled in cash |
| Deferred revenue | No | No | It will be settled by delivering the service, not by paying cash |
| Prepayments | No | No | You'll receive a service, not cash |
| Fixed assets | No | No | Held at historical cost |
The deferred revenue line catches people out. A SaaS company that bills a US customer $120,000 annually in advance books deferred revenue at the invoice-date rate and releases it at that same rate. It doesn't get revalued each month, even though the debtor does until it's paid.
The month-end FX revaluation, step by step
| Step | What "done" looks like | |
|---|---|---|
| ☐ | Pick and document a rate source (for example a central bank or your bank's published closing rate) and use it every month | Rate source written in the close procedures |
| ☐ | Record the closing rate for each currency on the last day of the month | Rates saved in the working paper with the source and a screenshot or download |
| ☐ | Make sure all foreign currency transactions for the month are posted | Bank, debtors and creditors complete before you revalue |
| ☐ | List every monetary balance by currency, with its foreign amount and current pound book value | List agrees to the trial balance and to the foreign currency sub-ledgers |
| ☐ | Calculate the pound value at the closing rate | Foreign amount ÷ closing rate (when rates are quoted as currency per £1) |
| ☐ | Calculate the difference and post the revaluation journal | Journal approved and posted to an unrealised FX gains and losses account |
| ☐ | Decide how the journal reverses (see below) and set it up consistently | Method documented and the same every month |
| ☐ | Reconcile the foreign currency bank account in both currencies | Foreign amount agrees to the statement; pound amount agrees to foreign amount ÷ closing rate |
| ☐ | Explain the month's FX gain or loss in the commentary | One line linking the movement to the rate change |
AI shortcut: give an approved AI assistant your list of foreign currency balances (currency, foreign amount, current pound value) and the closing rates, and ask it to calculate the revaluation per line and draft the journal. Then check two or three lines by hand and agree the total to your spreadsheet before posting.
Choosing a reversal method
There are two common approaches. Both give the same answer over time; the key is to pick one and stick to it.
- Reverse and revalue: post the unrealised revaluation at month-end and reverse it on day 1 of next month. Each month you revalue from the original booked rate again. When the item is settled, the full difference from the original rate is a realised gain or loss.
- Cumulative (no reversal): the revaluation stays in the books and becomes the new carrying amount. Next month you only revalue the further movement. When settled, only the difference from the last revalued amount is realised.
Many ledgers handle this for you. Some post revaluation journals automatically; others (Xero, for example) show unrealised gains and losses in reports without posting a journal. Check what yours does before adding manual journals on top, or you'll count it twice.
Worked example: MonthEndClub Co Ltd at 31 October
MonthEndClub Co Ltd keeps its books in pounds. Rates are quoted as foreign currency per £1. At 31 October the closing rates are $1.25 and €1.25. It has these foreign currency balances:
| Balance | Foreign amount | Book value (£) | Rate used in the books |
|---|---|---|---|
| US dollar bank account | $50,000 | 41,000 | Mix of historical rates |
| Trade debtor: US customer (invoiced 15 October) | $24,000 | 20,000 | $1.20 |
| Trade creditor: German contractor (invoiced 20 October) | €12,000 | 10,000 | €1.20 |
| Deferred revenue: US customer annual contract | $110,000 | 91,667 | $1.20 (not revalued) |
Step 1: calculate the revaluation
| Balance | Foreign amount | At closing rate (£) | Book value (£) | Gain / (loss) (£) |
|---|---|---|---|---|
| USD bank (asset) | $50,000 ÷ 1.25 | 40,000 | 41,000 | (1,000) |
| USD debtor (asset) | $24,000 ÷ 1.25 | 19,200 | 20,000 | (800) |
| EUR creditor (liability) | €12,000 ÷ 1.25 | 9,600 | 10,000 | 400 |
| Net unrealised FX loss | (1,400) |
The pound got stronger against both currencies in October (more dollars and euros per pound). That makes foreign currency assets worth less in pounds, and foreign currency liabilities cheaper to settle. So the assets show losses and the creditor shows a gain. Deferred revenue isn't in the table because it is non-monetary.
Step 2: post the journal
| Account | Dr | Cr |
|---|---|---|
| Unrealised FX gains and losses (P&L) | £1,400 | |
| Trade creditors: German contractor | £400 | |
| Bank: USD account | £1,000 | |
| Trade debtors: US customer | £800 | |
| Total | £1,800 | £1,800 |
After posting, the USD bank account shows £40,000, which is $50,000 at the closing rate. That's the check that the bank reconciliation in pounds works.
Step 3: settlement in November (cumulative method)
MonthEndClub Co Ltd uses the cumulative method, so the debtor now sits at £19,200. On 12 November the US customer pays $24,000 when the rate is $1.28. The pounds received are $24,000 ÷ 1.28 = £18,750.
| Account | Dr | Cr |
|---|---|---|
| Bank: USD account | £18,750 | |
| Realised FX gains and losses (P&L) | £450 | |
| Trade debtors: US customer | £19,200 |
The total loss on this invoice is £1,250 (£20,000 booked less £18,750 received): £800 unrealised in October and £450 realised in November. Under the reverse-and-revalue method, October would still show £800, November would reverse it and then book a realised loss of the full £1,250. Same total, different split.
If you report under US GAAP (ASC 606): foreign currency is covered by ASC 830 rather than ASC 606, and the principle is the same: monetary items are remeasured at the closing rate through profit or loss, and non-monetary items such as deferred revenue stay at historical rates. US teams often call the process "remeasurement".
A note on VAT
Revaluation is an accounting entry; it doesn't change the VAT on an invoice. Where a VAT invoice is raised in a foreign currency, the VAT amount is converted to sterling at the time of supply using a rate HMRC allows. HMRC publishes its own monthly exchange rates and explains the permitted methods on gov.uk, so check the current guidance there.
Common mistakes and audit watch-outs
- Revaluing deferred revenue or prepayments. These are non-monetary. Revaluing them creates FX gains and losses that shouldn't exist.
- Using a different rate source each month. It makes the numbers hard to audit. Pick a source, document it and save the evidence.
- Double-counting with the ledger. If your system already revalues, a manual journal on top doubles the gain or loss.
- Mixing up rate direction. $1.25 per £1 means divide the dollar amount by 1.25. Multiplying gives nonsense. A quick sense check catches it.
- Forgetting accruals and intercompany balances. They are monetary items too, and they're often missed.
- Revaluing before the month's transactions are posted. Late postings mean the revaluation is on the wrong balances.
- Trusting AI arithmetic unchecked. AI can apply a rate the wrong way round or pick up the wrong balance. Check sample lines and the total before posting.
- Putting bank and customer data into unapproved AI tools. Only use AI tools your company has approved for financial data.
Tools that can help
Xero, QuickBooks, Sage and NetSuite all support multi-currency accounting, though they differ on whether they post revaluation journals or calculate unrealised gains in reports. Payment and treasury tools such as Stripe show the rates applied to payouts, which helps with realised gains. Excel or Google Sheets works well for the revaluation working paper. Tools don't replace the process; someone still checks the rate, the balances and the journal.
Take it to your boss: one slide
Making month-end FX revaluation reliable
The problem: FX gains and losses swing month to month, and we spend time explaining numbers we can't fully trace.
Three changes
- One documented rate source, with closing rates saved each month.
- A standard working paper listing every monetary balance by currency, agreed to the trial balance.
- AI-assisted first draft of the calculation and journal, checked by a reviewer before posting.
| Risk | Control |
|---|---|
| Wrong rate or wrong direction | Rate source documented; reviewer checks sample lines |
| Non-monetary items revalued | Working paper lists only approved monetary accounts |
| Double-counting with the ledger | Method documented; system settings checked once a year |
| AI error or data leak | Approved tools only; every output reviewed |
How we'll measure it: foreign currency bank accounts reconcile in both currencies every month, and every FX movement in the pack has a one-line explanation.
Rates, thresholds and rules in this guide
Figures were checked against the pages below in October 2026. They change regularly (often each April or at Budget time), and we can't guarantee they're still current or right for your situation. Always check the official page before relying on them.
- Transactions in foreign currencies and VAT (GOV.UK): converting VAT on foreign currency invoices, HMRC period rates
Key takeaways
- Revalue monetary items (cash, debtors, creditors, accruals, intercompany) at the closing rate each month.
- Leave non-monetary items, including deferred revenue and prepayments, at historical rates.
- Use one documented rate source and save the evidence.
- Pick a reversal method and apply it consistently; check what your ledger already does.
- AI can draft the calculation and journal; a person checks and approves it.
FAQs
Which exchange rate should we use?
For the accounts, a closing spot rate from a reliable, consistent source is the common approach. For VAT on foreign currency invoices, HMRC has its own rules on allowed rates, set out on gov.uk.
Where do FX gains and losses go in the P&L?
Many companies show them in finance costs or other operating income and expenses. The key is consistency and a clear accounting policy.
Do we need to revalue every week?
Not usually. Revaluation is typically done at each reporting date, which for most teams means month-end.
Can AI work out our FX revaluation?
It can calculate the revaluation from your balances and rates and draft the journal quickly. A person still checks the rates, the direction and the totals, and the data only goes into company-approved AI tools.
Why does our dollar bank account never reconcile in pounds?
Usually because the revaluation hasn't been posted, or has been posted against the wrong balance. After revaluation, the pound balance should equal the dollar balance divided by the closing rate.
Related guides
- Intercompany Reconciliations for Multi-Entity SaaS
- Bank Reconciliations Done Properly
- Stripe Payout Reconciliation: Fees, Refunds, Disputes and FX
- How to Build and Reconcile a Deferred Revenue Schedule
More in Reconciliations and Controls guides.
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This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.