---
title: "Foreign exchange gain or loss"
description: "What a foreign exchange gain or loss is, the difference between realised and unrealised FX differences, how to record them and a worked journal entry example."
canonical: https://ledgeriano.com/glossary/foreign-exchange-gain-loss
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Foreign exchange gain or loss

> What a foreign exchange gain or loss is, the difference between realised and unrealised FX differences, how to record them and a worked journal entry example.

A foreign exchange gain or loss is the change in the base-currency value of a foreign-currency item caused by a movement in exchange rates between the date it was recorded and the date it is settled or remeasured. Realised differences arise on payment; unrealised differences arise when open monetary balances are retranslated at the closing rate.

Suppose you owe a supplier in a foreign currency. If your base currency weakens before you pay, you need more of it to settle the same invoice and you book a loss. If it strengthens, you book a gain. Receivables work the other way round.

At each reporting date, monetary items still open are retranslated at the closing rate and the difference goes to profit or loss as an **unrealised** gain or loss. When the item is finally paid, the difference between the last carrying amount and the cash actually paid or received is the **realised** part. IAS 21 recognises both in profit or loss, except for specific cases such as net investments in foreign operations.

Keep FX differences in dedicated accounts, separate from sales and purchases, so margins are not distorted. The [multi-currency accounting guide](https://ledgeriano.com/guides/multi-currency-accounting) walks through revaluation entries step by step.

```
FX difference = Foreign amount × (Rate at settlement or closing - Rate at recognition)
```

## Example: paying a supplier after the rate moved

A EUR-based company receives a 5,000 USD invoice when 1 USD = 0.90 EUR and records a payable of 4,500 EUR. It pays a month later when 1 USD = 0.93 EUR, costing 4,650 EUR.

| Account | Debit (EUR) | Credit (EUR) |
| --- | --- | --- |
| Trade payables | 4,500 |  |
| Foreign exchange loss | 150 |  |
| Bank |  | 4,650 |

### Is an unrealised FX gain taxable?

That depends on the tax law where the business is resident. Some countries tax unrealised differences as booked, others only when realised. Check local rules or ask a tax adviser.

### Where do FX gains and losses appear in the income statement?

Usually under other income and expenses or finance income and costs. Choose one presentation and apply it consistently from year to year.

Guide: https://ledgeriano.com/guides/multi-currency-accounting