PROPOSED ACCOUNTING TRANSACTIONS FOR X7000 ACCOUNTS

**PLEASE NOTE THAT THIS ILLUSTRATION IS A ROUGH DRAFT. WE NEED AGENCIES
THAT HAVE THESE TYPE OF ACTIVITIES TO REVIEW AND PROVIDE US WITH
COMMENTS.**

> Prepared by Christine Chang,
>
> Department of Treasury, Financial
>
> Management Service, USSGL
>
> 202-874-6445
>
> Christine.Chang@fms.treas.gov

##### Background

Formerly known as Foreign Transaction (FT) account, X7000 accounts were
established to report foreign currencies acquired without expenditure of
U.S. dollars, such as donated revenue, sale of commodities and etc. The
currencies in the X7000 account is not translated into US dollar
equivalent, rather it is assigned 1:1 exchange rate to avoid budgetary
loss and to accommodate Treasury. However, this valuation of the foreign
currency causes a conflict with the guidance from the FASAB Standard #1,
which states that foreign currencies have to be translated in to U.S.
dollar equivalent. This will result in translational gain or loss,
including in the X7000 account.

> ***What are unfunding and reclaiming? How do they relate to X7000
> accounts and the 20x6701?***
>
> In October 15, 1996, a permanent legislation pursuant to Public law
> 89-667 was approved. This law allows the Federal government to utilize
> foreign currency that has no immediate use by the program accounts
> thereby delaying the expenditure of appropriated U.S. dollar. The law
> states that "any foreign currencies held by the United States which
> have been or may be reserved or set aside for specified programs or
> activities of any agency of the Government may be used by Federal
> agencies for any authorized purpose, except 1) that reimbursements
> shall be made to the Treasury from applicable appropriations of the
> agency concerned, and 2) that any foreign currencies so used shall be
> replaced when needed for the purpose for which originally reserved or
> set aside." As a result of this legislation, a special deposit fund
> 20x6701 was established. It is a dollar denominated account and the
> balance is subject to exchange difference.
>
> U.S. D.O. borrows (Unfunding) the foreign currency for his/her
> operating needs from X7000 accounts. When the program agency (X7000)
> needs the foreign currency for expenses, the USDO buys the actual
> foreign currency needed and makes the disbursement on their behalf.
> This expenditure is made against the X7000 program account
> (Reclaiming), which reduces the amount of foreign currency owed to the
> agency. USDO use 20x6701 to process the unfunding and reclaiming of
> foreign currency activity relating to X7000 accounts.
>
> ***Who should bear the exchange loss?***
>
> An FMS memorandum dated September 11, 1964 stated that risk of
> exchange loss should be assumed by Treasury, and that assurances be
> given to program agencies that currencies "borrowed" from program
> accounts will be returned when needed for program purposes in amounts
> fixed in terms of currency units regardless of dollar values. However,
> FASAB standard #1 requires foreign currency to be translated to U.S.
> dollar equivalent therefore program accounts with foreign currency
> will have exchange gain or loss.
>
> ***FMS used to report X7000 accounts, why was the reporting
> responsibility changed?***
>
> The financial statement auditors for the Treasury Managed Accounts
> (TMA) determined that foreign currencies held by the U.S. government
> should not be reported as an asset of the Financial Management
> Service. The auditors feel these foreign currencies do not meet the
> asset requirements of the Statement of Federal Financial Accounting
> Standard #1. An asset must either be available to the entity for use
> in its operation, or must be held by the entity but not available for
> use in its operations. The foreign currency accounts do not meet
> either of the requirements. As a result, FMS no longer reports these
> foreign currency accounts in their financial statement. It is now up
> to the agencies to report these foreign currencies on their financial
> report.
>
> \*\*\*\*\* For more comprehensive information on foreign currency,
> refer to TFM Volume I, Part II, Chapter 3200, "Foreign Currency
> Accounting and Reporting".

###### References

-   Policy-Proceeds for unfunding certain foreign exchange transactions,
    Treasury

```{=html}
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```
-   Disbursing Officer Accounts X-7000 Accounts, FMP/F/IFS/Issue #34,
    dated July 17, 2000

-   FMS Memorandum dated 11/9/2000

-   KPMG Financial Management Service -- Treasury-managed Accounts
    Foreign Currency Position Paper, dated September 20,2000

-   Memorandum from H.R. Gearhart , commissioner of Accounts, dated
    9/11/1964

-   FASAB Standard #1, Selected Assets and Liabilities

THE RELATIONSHIP BETWEEN X7000 ACCOUNT AND 20X6701

There are some outstanding issues relating to the X7000 accounts.

+-------------------------------------------+--------------------------+
| ISSUES                                    | COMMENTS                 |
+-------------------------------------------+--------------------------+
| 1)  Is agency using X7000 accounts to     |                          |
|     record initial deposit of foreign     |                          |
|     currency collection and disbursements |                          |
|     out of the X7000 accounts? If not,    |                          |
|     what accounts are you using?          |                          |
+-------------------------------------------+--------------------------+
| 2)  The budgetary illustrations are not   |                          |
|     shown in the X7000 account. Each      |                          |
|     agency should decide with their       |                          |
|     budget examiner to see whether they   |                          |
|     are required to submit OMB 132 and    |                          |
|     OMB 133 for X7000 accounts (see       |                          |
|     below). Once agencies are told to do  |                          |
|     so by OMB, we could revisit the       |                          |
|     budgetary issues at that time. Until  |                          |
|     then, only the proprietary entries    |                          |
|     will be illustrated in the case       |                          |
|     study.                                |                          |
+-------------------------------------------+--------------------------+
| 3)  *OMB A34, Section 20.6*               | ###### Per OMB           |
|                                           |                          |
| What accounts are not apportioned?        | It is up to individual   |
|                                           | budget examiner to       |
| Foreign currency (FT) fund accounts       | determine whether        |
|                                           | apportionment and        |
| ####### OMB A34, Section 21.19            | submission of 133s are   |
|                                           | needed.                  |
| OMB may request that you apportion your   |                          |
| FT account. If so, type "Authority to     |                          |
| spend foreign currency receipts" in the   |                          |
| stub column for line 1 on the SF 132.     |                          |
| Include the most recent Treasury exchange |                          |
| rates on each SF 132 and SF 133. Include  |                          |
| amounts transferred from Treasury and     |                          |
| credited to the agency foreign currency   |                          |
| accounts on line 1A. Include amounts      |                          |
| anticipated to be transferred during the  |                          |
| year on line 1E. Limit balances brought   |                          |
| forward (on line 2A) to balances in your  |                          |
| FT accounts. Verify that foreign currency |                          |
| units reported in dollars agree with the  |                          |
| "foreign Currency Statement and Account   |                          |
| Current" (Foreign services Form 488)      |                          |
| prepared by disbursing officers.          |                          |
|                                           |                          |
| OMB may require that you prepare an SF133 |                          |
| report in dollars for each currency in    |                          |
| each FT account.                          |                          |
+-------------------------------------------+--------------------------+
| 4)  What do we do with budgetary          | See issues 2 & 3         |
|     gain/loss?                            |                          |
+-------------------------------------------+--------------------------+
| 5)  When 20X6701 borrows money from X7000 | ###### Per OMB           |
|     account, is this considered an outlay |                          |
|     or means of financing for X7000       | It is not a borrowing    |
|     account?                              | authority since that law |
|                                           | did not specifically say |
| ####### OMB A11, Section 20.6 and 20.7    | so.                      |
|                                           |                          |
| " . . . . . you don't record outlays for  | ###### Per PL 88-677     |
| the following:                            |                          |
|                                           | "F.C....maybe used by    |
| Repayment of debt                         | Federal agencies . .     |
|                                           |                          |
| Disbursements from deposit funds "        | 1\) *reimbursement*      |
|                                           | shall be made to         |
| "Under means of financing and not as      | Treasury from applicable |
| outlay                                    | appropriation . . . 2) . |
|                                           | .F.C. *shall be          |
| certain exchange of cash . . . changes in | replaced* when needed. . |
| Treasury's operating cash balance"        | "                        |
|                                           |                          |
| ######## OMB A11, Section 20.6            | ###### OMB A11           |
|                                           |                          |
| Outlay means a payment to liquidate an    | Based on A11, section    |
| obligations . . .                         | 20.6, it is not an       |
|                                           | outlay because it        |
|                                           | doesn't liquidate        |
|                                           | obligation.              |
+-------------------------------------------+--------------------------+

> File: NONPURCH 4

OPTION A

Assume reporting period begins in 10/1/x0 to 9/30/x1

+--------------------+------------------------+------------------------+
| **DESCRIPTION**    | **AGENCY Y's           | **TREASURY (20X6701)** |
|                    | X7000**[^1]            |                        |
|                    |                        | **Proceeds for         |
|                    | **(OFF BUDGET)**       | Unfunding Certain      |
|                    |                        | Foreign Exchange       |
|                    |                        | Accounts, Treasury**   |
+--------------------+------------------------+------------------------+
| 1\) On 10/1/x0     | # Proprietary          | # Proprietary          |
| Agency Y receives  |                        |                        |
| 100 Psos as        | 1200 Foreign Currency  | None                   |
| donated revenue    | 25 (100 Psos)          |                        |
| and records it in  |                        | # Budgetary            |
| the X7000 account. | 5600 Donated rev 25    |                        |
| (X7000 collects    | (100 Psos)             | *None*                 |
| foreign currency   |                        |                        |
| without            | # Budgetary            |                        |
| expenditure of     |                        |                        |
| appropriated \$    | None                   |                        |
| and donated        |                        |                        |
| revenue used in    |                        |                        |
| this illustration  |                        |                        |
| is one of the      |                        |                        |
| examples)          |                        |                        |
|                    |                        |                        |
| **Note             |                        |                        |
| transactions 1 and |                        |                        |
| 2 will occur       |                        |                        |
| simultaneously.**  |                        |                        |
|                    |                        |                        |
| Treasury exchange  |                        |                        |
| rate               |                        |                        |
|                    |                        |                        |
| \$1 = 4 Psos       |                        |                        |
+--------------------+------------------------+------------------------+
| 2\) The USDO       | # Proprietary          | #                      |
| immediately        |                        |  Exchange rate for FC  |
| unfunds (borrow)   | 1310G A/R 25(100Psos)  | to the \$ is 4Psos=\$1 |
| the foreign        |                        |                        |
| currency in the    | 1200 Foreign Currency  | 100Psos x .25 = \$25   |
| x7000 account. It  | 25(100Psos)            |                        |
| is at this point   |                        | # Proprietary          |
| that 20X6701, a    | ## Budgetary           |                        |
| Treasury account   |                        | 1200 Foreign Currency  |
| will record the    | None                   | 25                     |
| liability. **Note  |                        |                        |
| transactions 1 and |                        | 2110G AP 25            |
| 2 will occur       |                        |                        |
| simultaneously.**  |                        | # Budgetary            |
|                    |                        |                        |
| Q1) Should the     |                        | None                   |
| liability be       |                        |                        |
| account 2400?      |                        |                        |
| Since 20x6701 is a |                        |                        |
| deposit fund?      |                        |                        |
|                    |                        |                        |
| Treasury exchange  |                        |                        |
| rate               |                        |                        |
|                    |                        |                        |
| \$1 = 4 Psos, ¼    |                        |                        |
| =.25               |                        |                        |
|                    |                        |                        |
| 100psos x.25 =     |                        |                        |
| \$25               |                        |                        |
+--------------------+------------------------+------------------------+
| 3\) On 6/30/X1,    | # Proprietary          | Exchange rate for FC   |
| Agency Y needs to  |                        | to the \$ is 5Psos=\$1 |
| pay 80Psos for its | 1200 Foreign Currency  |                        |
| Program. USDO pays | 16(80Psos)             | 80 Psos x .25 = \$20   |
| back (reclaims)    |                        |                        |
| the amount         | 7290G O.Losses 4       | 80Psos x .20 =         |
| borrowed from      |                        | [\$16]{.underline}     |
| X7000 account.     | 1310G A/R 20(80Psos)   |                        |
|                    |                        | Gain 4                 |
| Note: Even though  | # Budgetary            |                        |
| foreign currencies |                        | # Proprietary          |
| are stated in      | None                   |                        |
| foreign currency   |                        | 2110G AP 20            |
| units, it needs to |                        |                        |
| be translated to   |                        | 1200 F.Currency 16     |
| \$ equivalent for  |                        |                        |
| financial          |                        | 7190G Gain 4           |
| statement          |                        |                        |
| purposes.          |                        | # Budgetary            |
| Therefore, Gain or |                        |                        |
| losses will be     |                        | None                   |
| recognized.        |                        |                        |
|                    |                        |                        |
| Treasury exchange  |                        |                        |
| rate               |                        |                        |
|                    |                        |                        |
| \$1= 5 Psos, 1/5 = |                        |                        |
| .2                 |                        |                        |
|                    |                        |                        |
| Foreign currency = |                        |                        |
| 80psos x .2 = \$16 |                        |                        |
|                    |                        |                        |
| Loss = \$20 - \$16 |                        |                        |
| = \$4              |                        |                        |
+--------------------+------------------------+------------------------+
| 4\) At the end of  | # Proprietary          | Exchange rate for FC   |
| FY 9/30/x1         |                        | to the \$ is 6Psos=\$1 |
|                    | 7290G O.Losses 1.67    |                        |
| Foreign currency,  |                        | Accounts Payable:      |
| Receivable and     | 1310G A/R 1.67         |                        |
| Payable are        |                        | 20Psos x .25 = 5.00    |
| revalued           | 7290G O. Losses 2.67   |                        |
|                    |                        | 20Psos x .1667 =       |
| Treasury exchange  | 1200 Foreign Currency  | [\$3.33]{.underline}   |
| rate is            | 2.67                   |                        |
|                    |                        | Gain 1.67              |
| \$1 = 6 Psos, 1/6  | # Budgetary            |                        |
| = .16667           |                        | # Proprietary          |
|                    | None                   |                        |
| Accounts           |                        | 2110G AP 1.67          |
| receivable         |                        |                        |
|                    |                        | 7190G Gain 1.67        |
| 20Psos x .25 =     |                        |                        |
| 5.00               |                        | # Budgetary            |
|                    |                        |                        |
| 20Psos x .16667 =  |                        | None                   |
| [3.33]{.underline} |                        |                        |
|                    |                        |                        |
| 1.67               |                        |                        |
|                    |                        |                        |
| Foreign currency:  |                        |                        |
|                    |                        |                        |
| 80psos x .2 = \$16 |                        |                        |
|                    |                        |                        |
| 80Psos x .16667 =  |                        |                        |
| [                  |                        |                        |
| 13.33]{.underline} |                        |                        |
|                    |                        |                        |
| Loss 2.67          |                        |                        |
+--------------------+------------------------+------------------------+

######### TRIAL BALANCES FOR OPTION A

+---------------------------------+------------------------------------+
| **AGENCY's X7000 ACCOUNT**      | **TREASURY (20X6701)**             |
|                                 |                                    |
| **(OFF BUDGET)**                |                                    |
+---------------------------------+------------------------------------+
| # Proprietary                   | # Proprietary                      |
|                                 |                                    |
| 1200 F.Currency 13.333 (80      | 1200 Foreign Currency 9            |
| Psos)                           |                                    |
|                                 | 2110G Accounts Payable 3.33        |
| 1310G A/R 3.333(20 Psos)        |                                    |
|                                 | 7190G Other Gains 5.67             |
| **7290G O.Losses 8.334**        |                                    |
|                                 | # Budgetary                        |
| 5600 Donated rev 25 (100 Psos)  |                                    |
|                                 | None                               |
| # Budgetary                     |                                    |
|                                 |                                    |
| # None                          |                                    |
+---------------------------------+------------------------------------+

OPTION B

Unlike the option A, option B illustrates X7000 carrying 1:1 exchange
rate at the transactional level. At the end of the reporting period for
financial purpose agencies with X7000 account will translate their
foreign currency and receivable balance to U.S. Dollar Equivalent.

+-----------------------+-----------------------+-----------------------+
| **DESCRIPTION**       | **AGENCY Y's X7000**  | **TREASURY            |
|                       |                       | (20X6701)**           |
|                       | **(During the Year,   |                       |
|                       | rate is valued at 1:1 | **Proceeds for        |
|                       | ratio but for the     | Unfunding Certain     |
|                       | financial statement   | Foreign Exchange      |
|                       | purpose, foreign      | Accounts, Treasury**  |
|                       | currency is valued at |                       |
|                       | the Treasury exchange |                       |
|                       | rate**[^2]**)**       |                       |
+-----------------------+-----------------------+-----------------------+
| 1\) On 10/1/x0 Agency | # Proprietary         | # Proprietary         |
| Y receives 100 Psos   |                       |                       |
| as donated revenue    | 1200 Foreign Currency | None                  |
| and records it in the | 100                   |                       |
| X7000 account, which  |                       | # Budgetary           |
| is assigned 1:1       | 5600 Donated rev 100  |                       |
| exchange rate.        |                       | *None*                |
|                       | # Budgetary           |                       |
| (X7000 acquires       |                       |                       |
| foreign currency      | None                  |                       |
| without expenditure   |                       |                       |
| of appropriated \$    |                       |                       |
| and donated revenue   |                       |                       |
| used in this          |                       |                       |
| illustration is one   |                       |                       |
| of the examples)      |                       |                       |
|                       |                       |                       |
| **Note transactions 1 |                       |                       |
| and 2 will occur      |                       |                       |
| simultaneously**.     |                       |                       |
|                       |                       |                       |
| Treasury exchange     |                       |                       |
| rate on 10/1/x0       |                       |                       |
|                       |                       |                       |
| \$1 = 4 Psos          |                       |                       |
+-----------------------+-----------------------+-----------------------+
| 2\) The USDO          | # Proprietary         | # Exchange r          |
| immediately unfunds   |                       | ate for FC to the \$  |
| (borrow) the foreign  | 1310G A/R 100         | is 4Psos=\$1, ¼ = .25 |
| currency in the x7000 |                       |                       |
| account. It is at     | 1200 Foreign Currency | 100Psos x .25 =\$25   |
| this point that       | 100                   |                       |
| 20X6701, a Treasury   |                       | # Proprietary         |
| account will record   | ## Budgetary          |                       |
| the liability.        |                       | 1200 Foreign Currency |
|                       | None                  | 25                    |
| **Note transactions 1 |                       |                       |
| and 2 will occur      |                       | 2110G AP 25           |
| simultaneously.**     |                       |                       |
|                       |                       | # Budgetary           |
| Treasury exchange     |                       |                       |
| rate on 10/1/x0       |                       | None                  |
|                       |                       |                       |
| \$1 = 4 Psos          |                       |                       |
+-----------------------+-----------------------+-----------------------+
| 3\) On 6/30/X1,       | # Proprietary         | Exchange rate for FC  |
| Agency Y needs to pay |                       | to the \$ is          |
| 80Psos for its        | 1200 Foreign Currency | 5Psos=\$1             |
| Program. USDO pays    | 80                    |                       |
| back (reclaims) the   |                       | 80 Psos x .25 = \$20  |
| amount borrowed from  | 1310G A/R 80          |                       |
| X7000.                |                       | 80Psos x .20 =        |
|                       | # Budgetary           | [\$16]{.underline}    |
| Note: Even though     |                       |                       |
| foreign currencies    | None                  | # Gain 4              |
| are stated in foreign |                       |                       |
| currency units, it    |                       | # Proprietary         |
| needs to be           |                       |                       |
| translated to \$      |                       | 2110G AP 20           |
| equivalent for        |                       |                       |
| financial statement   |                       | 1200 F.Currency 16    |
| purposes. Therefore,  |                       |                       |
| Gain or losses will   |                       | 7190G Gain 4          |
| be recognized.        |                       |                       |
|                       |                       | # Budgetary           |
| Treasury exchange     |                       |                       |
| rate on 6/30/x1       |                       | None                  |
|                       |                       |                       |
| \$1= 5 Psos           |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Please note that if   | # TRIAL BALAN         |                       |
| option B is used, the | CE BEFORE TRANSLATION |                       |
| balances in the       |                       |                       |
| account 1200, 1310    | 1200 F.Currency 80    |                       |
| and 5600 has to be    |                       |                       |
| restated in US \$     | 1310G A/R 20          |                       |
| equivalent. The       |                       |                       |
| amount illustrated on | 5600 Donated rev 100  |                       |
| the trial balance     |                       |                       |
| before translation is |                       |                       |
| showing 1:1           |                       |                       |
| valuation. Agency     |                       |                       |
| needs to make the     |                       |                       |
| necessary adjustments |                       |                       |
| to reflect correct    |                       |                       |
| balances (in us \$    |                       |                       |
| equivalent) on their  |                       |                       |
| financial report.     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| 5\) Adjusting entry:  | 5600 Donated rev 100  |                       |
|                       |                       |                       |
| Foreign currency:     | 1200 F.Currency 80    |                       |
|                       |                       |                       |
| 80psos x .25 = \$20   | 1310G A/R 20          |                       |
|                       |                       |                       |
| Accounts receivable   | 1200 F.Currency 20    |                       |
|                       |                       |                       |
| 20Psos x .25 = 5      | 1310G A/R 5           |                       |
|                       |                       |                       |
| Donated revenue       | 5600 Donated rev 25   |                       |
|                       |                       |                       |
| 100Psos x .25 = 25    |                       |                       |
+-----------------------+-----------------------+-----------------------+
| 6\) At the end of FY  | # Proprietary         | Exchange rate for FC  |
| 9/30/x1               |                       | to the \$ is          |
|                       | 7290G O.Losses 1.67   | 6Psos=\$1             |
| Foreign currency,     |                       |                       |
| Receivable and        | 1310G A/R 1.67        | Accounts Payable:     |
| Payable are revalued  |                       |                       |
|                       | 7290G O. Losses 6.67  | 20Psos x .25 = 5.00   |
| Treasury exchange     |                       |                       |
| rate is               | 1200 Foreign Currency | 20Psos x .1667 =      |
|                       | 6.67                  | [\$3.33]{.underline}  |
| \$1 = 6 Psos, 1/6 =   |                       |                       |
| .16667                | # Budgetary           | Gain 1.67             |
|                       |                       |                       |
| Accounts receivable   | None                  | # Proprietary         |
|                       |                       |                       |
| 20Psos x .25 = 5.00   |                       | 2110G AP 1.67         |
|                       |                       |                       |
| 20Psos x .16667 =     |                       | 7190G Gain 1.67       |
| [3.33]{.underline}    |                       |                       |
|                       |                       | # Budgetary           |
| 1.67                  |                       |                       |
|                       |                       | None                  |
| Foreign currency:     |                       |                       |
|                       |                       |                       |
| 80psos x .25 = \$20   |                       |                       |
|                       |                       |                       |
| 80Psos x .16667 =     |                       |                       |
| [13.33]{.underline}   |                       |                       |
|                       |                       |                       |
| Loss 6.67             |                       |                       |
+-----------------------+-----------------------+-----------------------+

TRIAL BALANCE AFTER TRANSLATION FOR OPTION B

+-----------------------------------+-----------------------------------+
| **AGENCY's X7000 ACCOUNT**        | **TREASURY (20X6701)**            |
|                                   |                                   |
| **(OFF BUDGET)**                  |                                   |
+-----------------------------------+-----------------------------------+
| # Proprietary                     | # Proprietary                     |
|                                   |                                   |
| 1200 F.Currency 13.333 (80 Psos)  | 1200 Foreign Currency 9           |
|                                   |                                   |
| 1310G A/R 3.333(20 Psos)          | 2110G Accounts Payable 3.33       |
|                                   |                                   |
| **7290G O.Losses 8.334**          | 7190G Other Gains 5.67            |
|                                   |                                   |
| 5600 Donated rev 25 (100 Psos)    | # Budgetary                       |
|                                   |                                   |
| # Budgetary                       | None                              |
|                                   |                                   |
| *None*                            |                                   |
+-----------------------------------+-----------------------------------+

[^1]: The foreign currency amount in X7000 account is valued at the
    local currency. It is not translated to \$ equivalent. However,
    FASAB Statement #1 requires all foreign currency to be valued in US
    \$ equivalent.

[^2]: FASAB #1, Accounting for Selected Assets and Liabilities,
    paragraph 32, " Foreign currency account balances should be
    translated into U.S. dollars at exchange rates determined by the
    Treasury and effective at the financial reporting date".