Currencies in Financial Transactions

Operating in a global landscape necessitates robust ERP systems capable of seamlessly managing transactions, settlements, and reporting across diverse currencies. Workday Financials stands out for its comprehensive multi-currency functionality, empowering finance professionals to navigate complex currency dynamics efficiently. In this inaugural post of our series on Currencies in Workday, we delve into fundamental concepts surrounding currency fields and transaction amounts, laying the groundwork for deeper exploration in subsequent articles.

Key Concept 1: Understanding Company Currency Assignments Within Workday Financials

Each company entity in Workday is associated with a designated master currency, commonly known as the base or ledger currency. Unlike traditional systems, Workday allows flexibility, enabling organizations to assign distinct ledger currencies to individual company instances based on operational needs and reporting obligations. Thus, most organizations will have different ledger currencies for each company instance in Workday.

It's imperative for finance teams to grasp this foundational concept as all financial transactions, manifested through journal entries, are recorded in the ledger currency, forming the basis for financial statement generation.  (Note: Workday recently released functionality to allow an Alternate Ledger Currency for companies. This will be addressed in a future post.)

Key Concept 2: Dual Currency Dynamics in Transactions

Every transaction in Workday entails two significant currency components: the ledger currency and the transaction currency. While the ledger currency represents the company's base currency, the transaction currency reflects the currency denomination of the specific transaction.

Consider a scenario where a UK-based company processes a supplier invoice denominated in Euros (EUR) while the company is operating with a ledger currency in GBP.

In this case, the Transaction Currency will be EUR, and the Ledger Currency will be GBP. When entering the invoice, the user will specify a Currency (EUR), and key what will be the Transaction Amount. When Workday posts the journal resulting from this invoice, it will derive the Ledger Amount as well:

If the Transaction Currency happens to be the same as the Ledger Currency for a company, Workday will persist the same amounts and currencies for both Transaction and Ledger.

Key Concept 3: Delving into Currency Conversion Rate Types 

Currency rates used in financial transacting and reporting are usually of 2 flavors: a Current Rate or an Average Rate. Each company will use combinations of these for different purposes, and different rate tables for differing purposes are called Rate Types in Workday.

The Current Rate (often called the “spot rate”) is the exchange rate for any specific day or point in time. Many companies import new FX rates into Workday each day, so that Operational Transactions like the one above can use precise rates by day. It is this Current Rate that was applied in the above transaction, based on its date.

The Average Rate is an average of exchange rates over a period of time – monthly, for example, which is used for translating P&L accounts to a common currency for consolidation. This is not typically used in transactions themselves, but rather in financial reporting, though there can be some exceptions.

The Historic Rate is specific to translating Balance Sheet accounts that do not need to undergo valuation changes due to FX, such as most Equity accounts. The Historic rate type is not meant to hold any actual rates to lookup; rather, this type is set to always use the original FX rate at the time of transaction to translate a certain value to a consolidation currency going forward. It is set to use the Current Rate as of the Transaction Date for new transactions being posted, and to “remember” the historic rates for any beginning balance. This rate type is not used in transactions, only once financial statements are being generated.

So, for this post, the Current Rate is what we care most about.

Key Concept 4: Implications for Manual Journals and Reclassifications 

For accountants, the concept of making a reclassification, or “reclass” journal entry, is very familiar. We may need to move a balance to a different account from where it was originally posted, or make a correction to the amounts, often as a function of month-end reconciling and scrutiny. It is vital to remember one’s currency behavior in making these reclass entries, so that we don’t leave issues and small amounts in the General Ledger for us to trip over later.

In the example above, let’s say that this entry was posted on 4/9/2024, but on 4/30/2024, an accountant determined that this expense belonged to May, so it was moved to a Prepaid account by manual journal on 4/30. If the accountant were to key ONLY the transaction amounts here, Workday will then use the 4/30 Current rate, and post this journal:

Thus, for the period of April 2024, there will be an amount of (£430.00 – £395.00) = £35.00 as Office Expense in May, when there should be zero.

When making such entries, it will be important for the accountant to remember that the Ledger Amount drives the financial statement data. In this case, the accountant must key BOTH amounts, thus overriding the application of the 4/30 Current Rate to the calculation:

Conclusion: 

Mastering currency dynamics in Workday Financials is pivotal for finance professionals navigating global transactions. By comprehending fundamental concepts such as company currency assignments, dual currency dynamics, currency conversion rate types, and implications for manual journals, organizations can streamline financial operations and enhance reporting accuracy. Stay tuned for upcoming posts, where we delve deeper into advanced topics including revaluations and currency aggregation in consolidation, unlocking further insights into Workday's multi-currency capabilities.

Unravel the complexities of currencies in Workday Financials is a journey, and we hope this initial Blog was a helpful first step for you. The next blog will dive deeper into Workday Financials.  

Author: Brady from Arizona