What is Accounting Currency
Accounting currency is the monetary unit used when recording transactions in a company's books. It is also called the reporting currency. The accounting/reporting currency is not necessarily the same as the functional or transactional currency, which is what customers see when conducting a transaction, such as a sale. Often, the accounting currency is in the same currency denomination as the local currency where the company operates.
BREAKING DOWN Accounting Currency
For companies or investors managing multiple currencies, the interplay of foreign exchange rates and conversions can make the maintenance of the books a complicated task. For companies operating in countries with a major currency, such as the U.S. dollar, euro or pound, the accounting currency may be the same as the selling currency. Companies operating in smaller markets with "minor" currencies are more likely to have a domestic accounting currency and a foreign selling currency.
Example of Accounting Currency
For example, a Japanese electronics company based in Tokyo will likely have its accounting currency be the yen, the same as the local currency in Japan where the company is headquartered and operates. Companies are likely to use their home country's currency, or local currency, when recording transactions, even if the sale was denominated in a foreign currency. A Japanese firm conducting business in China will likely use the yen as the accounting currency, even if sales transactions are conducted using the yuan.