Calculate the "Effect of Exchange Rate Changes on Cash" for financial reporting.
Cash balance in foreign currency at start of period.
Total cash flows (Operating + Investing + Financing) in FC.
Rate to convert Foreign Currency to Reporting Currency at start.
Weighted average rate applied to cash flows during the period.
Closing rate used to translate ending cash balance.
Calculation Results (Reporting Currency)
Opening Cash (Translated at Start Rate):
Net Cash Flow (Translated at Avg Rate):
Theoretical Ending Balance (Before FX adjustment):
Actual Ending Balance (Translated at Closing Rate):
Effect of Exchange Rate Changes (The Plug):
function calculateFXEffect() {
// 1. Get input values
var openFC = parseFloat(document.getElementById("openingCashFC").value);
var flowFC = parseFloat(document.getElementById("netFlowFC").value);
var rateOpen = parseFloat(document.getElementById("rateOpen").value);
var rateAvg = parseFloat(document.getElementById("rateAvg").value);
var rateClose = parseFloat(document.getElementById("rateClose").value);
// 2. Validate inputs
if (isNaN(openFC) || isNaN(flowFC) || isNaN(rateOpen) || isNaN(rateAvg) || isNaN(rateClose)) {
alert("Please fill in all fields with valid numbers.");
return;
}
// 3. Perform Calculations in Reporting Currency
// Step A: Translate Opening Balance
var openReported = openFC * rateOpen;
// Step B: Translate Net Cash Flows
var flowReported = flowFC * rateAvg;
// Step C: Calculate Theoretical Ending Balance (Math sum of reported movements)
var theoreticalEnd = openReported + flowReported;
// Step D: Calculate Actual Ending Balance (Ending FC * Closing Rate)
var endFC = openFC + flowFC;
var actualEndReported = endFC * rateClose;
// Step E: The Plug (FX Effect)
// FX Effect = Actual Ending – Theoretical Ending
var fxEffect = actualEndReported – theoreticalEnd;
// 4. Update UI
document.getElementById("result-section").style.display = "block";
// Helper to format numbers with commas and 2 decimals
function fmt(num) {
return num.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}
document.getElementById("resOpening").textContent = fmt(openReported);
document.getElementById("resFlow").textContent = fmt(flowReported);
document.getElementById("resTheoretical").textContent = fmt(theoreticalEnd);
document.getElementById("resActual").textContent = fmt(actualEndReported);
var fxElem = document.getElementById("resFXEffect");
fxElem.textContent = fmt(fxEffect);
// Visual cue for positive/negative effect
if (fxEffect >= 0) {
fxElem.style.color = "#27ae60"; // Green for gain
fxElem.textContent = "+" + fxElem.textContent;
} else {
fxElem.style.color = "#c0392b"; // Red for loss
}
}
Understanding the Effect of Exchange Rate Changes on Cash Flow
In multi-currency accounting, preparing a Statement of Cash Flows requires careful handling of foreign currency cash balances. According to accounting standards like IAS 7 and ASC 230, cash flows arising from transactions in a foreign currency should be recorded in the functional currency by applying the exchange rate at the date of the cash flow (or a weighted average rate for the period).
However, the cash balance itself is an asset held on the balance sheet. At the end of the reporting period, foreign currency cash balances must be translated at the closing rate. This creates a discrepancy between the cash flows recorded during the period and the final cash balance value.
Why is there a discrepancy?
The discrepancy arises because different exchange rates are used for different parts of the cash reconciliation:
Opening Cash: Translated at the opening rate.
Cash Movements (Inflows/Outflows): Translated at the average rate (or transaction dates).
Closing Cash: Translated at the closing rate.
Since exchange rates fluctuate, the math (Opening + Flows) rarely equals the (Closing) value calculated at the spot rate. This difference is reported as a separate line item called the "Effect of exchange rate changes on cash and cash equivalents."
How to Calculate the FX Effect
This calculator uses the standard reconciliation method used in financial reporting. The logic follows these steps:
1. Translated Opening Cash = Opening FC Balance × Opening Rate
2. Translated Net Cash Flow = Net FC Flow × Average Rate
3. Theoretical Closing Cash = (1) + (2)
4. Actual Closing Cash = (Opening FC + Net FC Flow) × Closing Rate 5. FX Effect = Actual Closing Cash – Theoretical Closing Cash
Interpreting the Result
A positive result indicates that the reporting currency weakened against the foreign currency (or the foreign currency strengthened), increasing the value of your cash holdings in reporting terms.
A negative result indicates that the reporting currency strengthened against the foreign currency, reducing the reported value of your foreign cash holdings.
It is important to note that this line item is not a cash flow itself. It is a reconciling item required to make the math work between the beginning balance, the net cash flows derived from operations/investing/financing, and the ending balance on the balance sheet.