Definition of Functional currency:
The availability of money to operate a business.
Popular with multinationals, functional currency represents the primary economic environment in which an entity generates and expends cash. It is the main currency used by a business in its business dealings.
As the financial statements of a business are reported in only one currency, the dealings or transactions that are done in another currency must be converted back to the principal currency used on the financial statements. The International Accounting Standards (IAS) and generally accepted accounting principles (GAAP) offer guidance on the translation of foreign currency transactions.
How to use Functional currency in a sentence?
- The Statement of Financial Accounting Standards (SFAS) No. 25 outlines the definition of functional currency.
- As companies transact in many currencies but report their financial statements in one currency, the foreign currencies have to be translated into the functional currency.
- A functional currency is the main currency that a company conducts its business.
- The guidelines for translating foreign currencies for financial statements are laid out in the International Accounting Standards (IAS) and generally accepted accounting principles (GAAP).
- Choosing a functional currency depends on a variety of factors, such as which affects price or expenses most.
- The functional currency does not necessarily have to be the currency of the country in which the company is headquartered.
Meaning of Functional currency & Functional currency Definition