If you’re in the e-commerce industry, you’ll probably be selling your products in many different markets around the world. This inevitably means conducting business in multiple different currencies. We’ll take a quick dive into how you can manage accounting for multiple currencies with Xero's Multi-Currency feature.
Complexities in getting this right include getting the correct currency conversion rate as well as accounting for banks that have multiple currencies included within one account (PayPal we’re talking about you!).
First things first you will want to ensure that you are using the Multi-Currency version of Xero. This version has a higher monthly cost compared to the standard Xero version however this allows you to record transactions in different currencies and Xero will automatically convert the amounts into your home currency.
Get it right from the start otherwise things will start to get messy really quickly.
Xero will also automatically calculate the gain/loss on currency which makes producing profit and loss reports and balance sheets so much more straightforward.
Multi-Currency Bank Feeds
Once you have the multi-currency option triggered in Xero you want to set up a bank feed for each account in each currency. When you set up the bank feed you will be presented with the option to select the currency the bank operates in.
Xero will then pull the transactions in the bank feed like normal. Once they are reconciled the amounts will be converted to your home currency.
PayPal is slightly more complex. The reason for this is because you have one PayPal account but within that account you could have balances of multiple currencies. This causes a problem because in Xero each account can only have 1 currency. For example, if you have a GBP PayPal account then any transaction in a different currency would not be pulled in – this could mean you end up failing to record loads of foreign currency transactions in Xero.
The way to fix this is to set up a PayPal account for each currency you hold a PayPal balance for eg. USD, GBP, EUR. Then Xero will pull in the transactions for that particular currency.
Once you know how to set your file up to support multi-currency it really isn’t too complicated. Our key advice is to get it right from the start otherwise things will start to get messy really quickly.