Answer / Pallavi Tewari

Journal entries are used to record financial transactions in a business's books. To pass a journal entry for foreign currency transactions, follow these steps:

1. Debit Foreign Currency Asset/Liability account: Record the foreign currency assets or liabilities acquired or incurred.
2. Credit Cash/Bank account: Record the equivalent amount in the reporting currency that was paid or received.
3. Debit Foreign Currency Translation Account (FCTA): Adjust the exchange rate gain or loss between the foreign currency and the reporting currency.
4. Credit FCTA: Record any unrealized gains or losses on monetary assets or liabilities.
5. Show Foreign Currency Translation Reserve in Balance Sheet: The cumulative net gain or loss is shown as a separate line item under stockholders' equity.

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