A business uses their accounting records to compile financial reports called Accounting Reports. Reports can be as brief or comprehensive as needed for custom-made reports intended for specific purposes such as profitability of a product line or sales by region. Accounting reports are equivalent financial statements.
The most common accounting reports are:
Income statements: shows the revenues earned during a period, minus the expenses, to arrive at a profit or loss. Since this judge the performance of a business, this is the most commonly used accounting report.
Balance sheet: shows the ending asset, liability and equity balances as of the balance sheet date. This report is used to judge the liquidity and financial reserves of a business.
Statement of cash flows: details the sources and uses of cash related to operations, financing, and investments. It is the most accurate source of information regarding a business’ ability to generate cash.
Mirror Account is the reflection of NOSTRO Account in the books of the principal bank. This is maintained for reconciliation purpose and is maintained in both foreign currency and rupees.
When there is a possibility for discrepancies due to differences in the timing of asset valuation, the value date is used. In Forex trading, the value date is regarded as the delivery date on which counterparties to a transaction agree to settle their respective obligations by making payments and transferring ownership. Due to differences in time zones and bank processing delays, the value date for spot trades in foreign currencies is usually set two days after a transaction is agreed on. The value date is the day that the currencies are traded, not the date on which the traders agree to the exchange rate.
The value date is also used in the bond market to calculate accrued interest on a bond. Calculation of accrued interest takes into account three key dates trade date, settlement date, and value date. The trade date is the date on which a transaction was executed. The settlement date is the date on which a transaction is completed. The value date is usually, but not always, the settlement date. The settlement date can only fall on a business day if a bond was traded on Friday (trade date), the transaction will be deemed complete on Monday, not Saturday. The value date can fall on any day as seen when calculating accrued interest, which takes into account every day of a given month.
The value date is also used when evaluating coupon bonds that make semi-annual interest payments. For example, in the case of savings bonds, the interest is compounded semi-annually, so the value date is every six months. This removes any uncertainty for investors since their calculations of interest payments will be the same as the governments.
Exchange profit and loss
A foreign exchange gain/loss occurs when a company buys and/or sells goods and services in a foreign currency, and that currency fluctuates relative to their home currency. It can create differences in value in the monetary assets and liabilities, which must be recognized periodically until they are ultimately settled.
The difference in the value of the foreign currency, when converted to the local currency of the seller, is called the exchange rate. If the value of the home currency increases after the conversion, the seller of the goods will have made a foreign currency gain.
However, if the value of the home currency declines after the conversion, the seller will have incurred a foreign exchange loss. If it is impossible to calculate the current exchange rate at the exact time when the transaction is recognized, the next available exchange rate can be used to calculate the conversion.
Realized gains or losses are the gains or losses on transactions that have been completed. It means that the customer has already settled the invoice prior to the close of the accounting period.
For example, assume that a customer purchased items worth €1,000 from a US seller, and the invoice is valued at $1,100 at the invoice date. The customer settles the invoice 15 days after the date the invoice was sent, and the invoice is valued at $1,200 when converted to US dollars at the current exchange rate.
It means that the seller will have a realized foreign exchange gain of $100 ($1,200–$1,100). The foreign currency gain is recorded in the income section of the income statement.
Unrealized gains or losses are the gains or losses that the seller expects to earn when the invoice is settled, but the customer has failed to pay the invoice by the close of the accounting period. The seller calculates the gain or loss that would have been sustained if the customer paid the invoice at the end of the accounting period.
A return, also known as a financial return, in its simplest terms, is the money made or lost on an investment over some period of time.
A return can be expressed nominally as the change in dollar value of an investment over time. A return can also be expressed as a percentage derived from the ratio of profit to investment. Returns can also be presented as net results (after fees, taxes, and inflation) or gross returns that do not account for anything but the price change.
A nominal return is the net profit or loss of an investment expressed in the amount of dollars (or other applicable currency) before any adjustments for taxes, fees, dividends, inflation, or any other influence on the amount. It can be calculated by figuring the change in the value of the investment over a stated time period plus any distributions minus any outlays.
Investors purchase assets as a way of saving for the future. Anytime an asset is purchased, the purchaser is forgoing current consumption for future consumption. To make such a transaction worthwhile the investors hope (sometimes expect) to have more money for future consumption than the amount they give up in the present. Thus investors would like to have as high a rate of return on their investments as possible.