Creating a purchase order in a foreign currency (conversion rate)

If your vendor operates in a different currency (for example, a supplier in Pakistan using Pakistani Rupees while your company's base is Afghan Afghani), you can create a purchase order in that foreign currency and set the exchange rate to convert amounts back to your company's base currency for accounting purposes.

Before you start

• Company currency: Know your company's base currency (the currency your accounts are kept in).
• Vendor currency: Know the currency the vendor uses.
• Exchange rate: Have today's exchange rate between the two currencies, or let the system use a default if one is configured.

Steps

1. Create a new purchase order and select the vendor (Purchase Orders → New Purchase Order)
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2. After selecting the vendor, look for the Currency field (usually near the top of the form or in the header).

3. If the vendor's default currency is not your company's base currency, click the currency dropdown and select the vendor's currency (e.g., PKR for Pakistani Rupees).

4. Once you change the currency, an Exchange Rate field will appear.

5. Enter the exchange rate (how many units of the vendor's currency equal one unit of your base currency). For example, if 1 AFN = 0.32 PKR, you would enter 0.32, or if 1 PKR = 3.13 AFN, enter 3.13 depending on how the system is configured.

6. Add line items with quantities and costs in the vendor's currency. The system will automatically convert each line to your base currency using the exchange rate.

7. The order totals will show both the foreign currency amount and the base currency equivalent.

8. Save the purchase order.

Accounting impact

When you record the foreign-currency purchase order, the system converts all amounts to your base currency for journal entries and reporting. If the exchange rate changes between the purchase order date and when you pay the invoice, you may have a foreign exchange gain or loss on the payment.

Tips & common mistakes

• Exchange rates fluctuate daily. Use the rate on the date you place the order or the date you expect to pay, depending on your company's policy.
• If the exchange rate changes significantly before you receive the goods, discuss with the vendor whether the price will be adjusted.
• The exchange rate on the purchase order is used to convert costs in the order. When the invoice arrives, verify that the vendor has not changed their local-currency price.
• If no default exchange rate is configured, you must enter one manually for each foreign-currency order.
• Always double-check the exchange rate direction (which currency is in the numerator and which is in the denominator) to avoid entering an inverted rate.