A foreign transaction is where you buy or sell an asset that's denominated in a foreign currency. The two most common foreign exchange transactions are importing goods and services and exporting goods and services, explains the Practical Accountancy Loose Leaf.
It's crucial that you convert the foreign amount you pay into rand, using the exchange rate on the day the transaction takes place. If you don't you could end up paying too much or too little for your goods or services because of foreign exchange fluctuations. The amount you'll need to pay won't necessarily be the same as the amount you'll need to pay on the transaction date.
If you get this wrong, SARS will punish you for non compliant behaviour.
But you can avoid this by following these clear clear-cut guidelines when recording your foreign exchange transactions.
Follow these steps five to ensure you never misstate your foreign exchange transactions:
Step #1: Convert the foreign amount to rands at spot rate on transaction date and record the purchase or sale at the converted amount.
Step #2: Identify any amounts you owe, or amounts that are owed to you, in a foreign currency.
Step #3: Restate the value of any money that you owe, at the spot rate, on each reporting date.
Step #4: Restate the value of any money that you owe, at the spot rate, at the settlement date.
Step #5: Make your final payment on settlement date.
Well there you have it. Following these steps will help ensure you record foreign exchange transactions correctly.