Historical Exchange Rates in Accounting Practices

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Historical Exchange Rates in Accounting Practices

In accounting, many transactions are carried out, and one must be keen to ensure that the correct information has been obtained. The failure to balance the sheets will lead to wrong decisions, and this will affect the organization since there will be errors in calculations leading to the organization incurring losses. Historical exchange rates provide the accountants with information about how currency for the past periods was and the different transactions which happened. Exchange rates are essential to be studied before carrying out any transaction of currency. On the other hand, accounting practices are among the most valuable sectors were severe and high levels of commitment are required to ensure that profits can be realized in the organization dealing with the exchange of currency (Ahmed and Tahir 47). The accounting practices usually use the historical exchange rate to be aware of what happened and foreshadow what will happen while exchanging the currency. It is crucial to analyze what happened so that one can predict what will happen in the future.

Translating assets is one of the processes that can be affected by the change of the exchange rate value. These are transactions that happen in organizations and companies and the worth of the assets should be measured first. There are differences between translating assets by the technique of the current rate method and the temporal method (Hongliang et al 750). The two differ in the asset liabilities translation as it is done through the current methods. The current methods usually possess a higher transactional risk than the temporal method, where profits can realize quickly (Cuypers et.al 120). Also, there is a smooth flow of the transaction being carried out. Therefore, it is essential to choose the proper method to avoid incurring unnecessary risks that might affect the organizations operations. Accounting processes require experts to avoid losses being made in the company.

Works Cited

Ahmed, Nurulatika, and Nor Suziwana Tahir. Employees Perception on Corporate Social Responsibility Practices and Affective Commitment. Journal of Accounting Research, Organization and Economics, vol 2, no. 1, 2019, pp. 41-53. Web.

Cuypers, Ilya RP, et al. Transaction Cost Theory: Past Progress, Current Challenges, and Suggestions for the Future. Academy of Management Annals 15.1 (2021): 111-150.

Fang, Hongliang, et al. An Overview of Global Leaf Area Index (LAI): Methods, Products, Validation, and Applications. Reviews of Geophysics 57.3 (2019): 739-799.

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