Temporal Method


DEFINITION of 'Temporal Method'

A method of foreign currency translation that uses exchange rates based on the time assets and liabilities are acquired or incurred. The exchange rate used also depends on the method of valuation that is used. Assets and liabilities valued at current costs use the current exchange rate and those that use historical exchange rates are valued at historical costs.

BREAKING DOWN 'Temporal Method'

By using the temporal method, any income-generating assets like inventory, property, plant and equipment are regularly updated to reflect their market values. The gains and losses that result from translation are placed directly into the current consolidated income. This causes the consolidate earnings to be rather volatile.

  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Inventory

    The raw materials, work-in-process goods and completely finished ...
  3. Income Statement

    A financial statement that measures a company's financial performance ...
  4. Current Rate Method

    A method of foreign currency translation where most items in ...
  5. Consolidated Financial Statements

    The combined financial statements of a parent company and its ...
  6. Foreign Exchange Risk

    1. The risk of an investment's value changing due to changes ...
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  1. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
  2. What is the difference between principles-based accounting and rules-based accounting?

    Almost all companies are required to prepare their financial statements as set out by the Financial Accounting Standards ... Read Full Answer >>
  3. Are domestic and foreign subsidiaries included on a company's financial statements?

    A subsidiary is a company that is controlled by another 'parent' company. The subsidiary acts and operates like its own entity ... Read Full Answer >>
  4. Do dividends affect working capital?

    Regardless of whether cash dividends are paid or accrued, a company's working capital is reduced. When cash dividends are ... Read Full Answer >>
  5. Do prepayments provide working capital?

    Prepayments, or prepaid expenses, are typically included in the current assets on a company's balance sheet, as they represent ... Read Full Answer >>
  6. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>

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