Realized profit and unrealized profit are other income in nature. And unrealized loss and realized loss are other expenses in nature.
Example: Your company currency is CAD and record a sale on the date you sold goods (take CAD 10 = 1 USD).
Sale Date: 01-01-09
Sales in CAD 100
Rate on date, sale is recorded CAD 10 = 1 USD
Sale in USD 10
Sales Entry will be:
DR Accounts receivable 100
CR Sales 100
Customer was billed in USD which was on 01-01-09 equals to 10.
On 01-02-09 customer paid for invoice in USD, he paid USD 10. On that day, currency rate was CAD 11 = 1 USD. This means that we have to record entry of CAD 110 in our books.
In this case we will use Realized Profit a/c and the entry would be:
DR Cash 110
CR Accounts receivable 100
CR Realized Profit A/C 10
Realized Profit 10 is the gain on currency exchange rate.
Similarly, if exchange rate decreases Realized Loss A/C will be debited.
Unrealized Profit and Loss A/C s are used if company takes provision of change in exchange rate into accounts.
Have a nice day!!
Written By: Akhwand Usman Tufail