Foreign currency accounting for UAE traders

Record at the rate on the day

A purchase or sale in a foreign currency is recorded in AED at the exchange rate on the transaction date. The AED dirham is pegged to the US dollar, so USD differences are usually small, but EUR, INR, GBP and CNY balances can move noticeably within a month.

Revalue open balances at period end

At each period end, unpaid supplier and customer balances and foreign currency bank accounts are revalued at the closing rate. The difference is an unrealised exchange gain or loss in the profit and loss. When the invoice is finally settled, any remaining difference is a realised gain or loss.

Why it matters

• Gross margin can look wrong if exchange differences are mixed into cost of sales without a policy
• Unrevalued balances overstate or understate what you owe and are owed
• Exchange differences form part of accounting profit, which is the starting point for Corporate Tax

A clean set-up

• Keep supplier and customer ledgers in their original currency
• Use one consistent rate source
• Revalue monthly if you report monthly, at least at year end
• Show exchange gains and losses on a separate line