Question: Changes in exchange rates affect the reporting of monetary assets and liabilities. Those amounts are
literally worth more or less U.S. dollars as the relative value of the currency fluctuates over time. For the two
balances above, the account receivable has to be remeasured on the date of the balance sheet because it is
a monetary asset while the sales balance remains $8,000 permanently. How is this change in the receivable
When monetary assets and liabilities denominated in a foreign currency are remeasured for reporting purposes,
how is the increase or decrease in value reflected?
Answer: In this example, the value of the 100,000-peso receivable is raised from $8,000 to $9,000. When
the amount reported for monetary assets and liabilities increases or decreases because of changes in currency
exchange rates, a gain or loss is recognized on the income statement. Here, the receivable is now reported $1,000
higher. The company’s financial condition has improved and a gain is recognized. If the opposite occurs and the
reported value of monetary assets declines (or the value of monetary liabilities increases), a loss is recognized.
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