How to Convert Foreign Currency Transactions in Accounting Books in Japan日本で帳簿を作る際の外貨取引の換算の方法

【Koshida Accounting Firm Column Date:

“Conviction is worthless unless it is converted into conduct.” - Thomas Carlyle

「信念は行動を起こさない限り無価値である。」- トーマス・カーライル




Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.

I aim to assist non-Japanese business owners who struggle with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.



When foreigners with many overseas clients start businesses in Japan, they often engage in numerous foreign currency transactions.




In this blog, I will discuss the method for handling these transactions.I hope this will enable you to efficiently and accurately record foreign currency transactions in your books.



1. The Timing of Exchanging Foreign Currency Transactions 外貨の取引の換算のタイミング

For sales, for example, it’s necessary to convert foreign currency transactions to Yen at three key times: when the sale occurs, when receivables are collected, and if there’s a financial closing within this period.




2. The Basic Rule of Converting Foreign Currency Transactions 外貨換算の基本ルール

(1)At the Time of Occurrence 発生時

Sales are recognized at the time they occur, typically coinciding with the closing day, such as the last day of the month. At this time, sales in foreign currency are converted to Yen by applying the exchange rate of that day to the foreign currency sales amount.




(2) At the Time of Settlement 決済時

At the time of settling accounts receivable, the settlement is generally recorded in the books at the current exchange rate. Since this rate may differ from the exchange rate at the time of sale, it will result in exchange gains or losses.



(3)At the Time of Financial Closing 決算時

If financial closing occurs between the recognition of sales and the settlement of accounts receivable, the receivables are converted using the exchange rate on the closing day. This rate will differ from the rate at the time of sale, leading to exchange gains or losses.




3. The Specific Example of Converting Foreign Currency 為替換算の具体例

(1)At the Time of Occurrence 発生時


In April, a sale of $100 occurred. The exchange rate at the end of April was 140 yen.

Accounting Transaction: On the last day of April, the sale is recorded as 100 dollars multiplied by 140 yen, amounting to 14,000 yen.







(2)At the Time of Financial Closing 決算時

Since the financial closing at the end of May occurs before the settlement, the exchange rate then is 130 yen.

Accounting Transaction: The conversion is 100 dollars multiplied by 130 yen, resulting in 13,000 yen. Since the yen has strengthened compared to the time of occurrence, an exchange loss of 1,000 yen (14,000 yen at the time of occurrence minus 13,000 yen at the time of closing) is recorded.

The exchange gain or loss at the end of the fiscal year is adjusted at the beginning of the next period. This means reversing the record by posting a one thousand yen exchange gain, returning it to the exchange rate at the time of occurrence.







(3)At the Time of Settlement 決済時

The account receivable was settled at the end of June with the exchange rate on that day being 135 yen.

Accounting Transaction: The conversion is 100 dollars multiplied by 135 yen, totaling 13,500 yen. An exchange loss of 500 yen is recorded, calculated as 14,000 yen (at the time of occurrence) minus 13,500 yen (at the time of settlement).







4.The Exchange Rates at the Time of Occurrence and Settlement 発生時や決済時の換算レート

The primary rates used are the Telegraphic Transfer Middle Rate (TTM). However, using the rate from the end of the previous month or the average rate of that month is also acceptable, provided they are applied consistently. If efficiency is desired, these alternatives should be considered.



5.Conversion of Foreign Currency Deposits and Other Assets at the Time of Financial Closing 決算時の外貨預金などの換算

At the time of financial closing, some assets and liabilities must be converted to Yen using the exchange rate on the final day of the fiscal year. For instance, foreign currency savings accounts must be converted using the Telegraphic Transfer Middle Rate (TTM) on the last day of the fiscal year.




6. Categorization of Foreign Exchange Gains and Losses for Consumption Tax 為替差損益の消費税の区分

Foreign exchange gains and losses are excluded from consumption tax. As sales can be classified as export transactions (which are taxable transactions with a 0% rate), it’s crucial to properly distinguish between recording sales and recording foreign exchange gains and losses. Failure to do so may result in issues during tax audits.





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