Average Exchange Rates Are Used to Translate Certain Items from Foreign

question 13

Multiple Choice

Average exchange rates are used to translate certain items from foreign financial statements into U.S. dollars. Such averages are used in order to:

• A) smooth out large translation gains and losses.
• B) eliminate temporary fluctuation in exchange rates that may be reversed in the next fiscal period.
• C) avoid using different exchange rates for some revenue and expense accounts.
• D) approximate the exchange rate in effect when the items were recognized.

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Definitions:

Liabilities

Financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of economic benefits.

Deferral

Accounting method to postpone the recognition of revenues or expenses until a future accounting period.

Journal Entry

A record in the accounting ledger that represents a transaction and its effect on various accounts, used for tracking and organizing financial data.

Accrual

Accrual is an accounting method that records revenues and expenses when they are earned or incurred, regardless of when the cash transaction actually takes place.