Realized profit and unrealized profit are other income in nature

Realized profit and unrealized profit are other income in nature. And unrealized loss and realized loss are other expenses in nature.

Example: Your company currency is CAD and record a sale on the date you sold goods (take CAD 10 = 1 USD).

Sale Date: 01-01-09

Sales in CAD 100

Rate on date, sale is recorded CAD 10 = 1 USD

Sale in USD 10

Sales Entry will be:

DR          Accounts receivable       100

CR                           Sales                                      100

Customer was billed in USD which was on 01-01-09 equals to 10.

On 01-02-09 customer paid for invoice in USD, he paid USD 10. On that day, currency rate was               CAD 11 = 1 USD. This means that we have to record entry of CAD 110 in our books.

In this case we will use Realized Profit a/c and the entry would be:

DR          Cash 110

CR                                           Accounts receivable  100

CR                                           Realized Profit A/C           10

Realized Profit 10 is the gain on currency exchange rate.

Similarly, if exchange rate decreases Realized Loss A/C will be debited.

Unrealized Profit and Loss A/C s are used if company takes provision of change in exchange rate into accounts.