# ASC 830-20-05: Foreign Currency Matters — Foreign Currency Transactions — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

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## ASC 830-20-05: 05 Overview and Background

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##### [830-20-05-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-05-1)

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This Subtopic establishes standards of financial accounting and reporting for [foreign currency transactions](https://asc.understandingaccounting.org/glossary/f/#foreign-currency-transactions "Transactions whose terms are denominated in a currency other than the entity's functional currency. Foreign currency transactions arise when a reporting entity does any of the following: Buys or sells on credit goods or services whose prices are denominated in foreign currency Borrows or lends funds and the amounts payable or receivable are denominated in foreign currency Is a party to an unperformed forward exchange contract For other reasons, acquires or disposes of assets, or incurs or settles liabilities denominated in foreign currency.") in financial statements of a [reporting entity](https://asc.understandingaccounting.org/glossary/r/#reporting-entity "An entity or group whose financial statements are being referred to. Those financial statements reflect any of the following: The financial statements of one or more foreign operations by combination, consolidation, or equity accounting Foreign currency transactions.").

##### [830-20-05-2](https://asc.understandingaccounting.org/asc/830/20/#830-20-05-2)

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Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of [foreign currency](https://asc.understandingaccounting.org/glossary/f/#foreign-currency "A currency other than the functional currency of the entity being referred to (for example, the dollar could be a foreign currency for a foreign entity). Composites of currencies, such as the Special Drawing Rights, used to set prices or denominate amounts of loans, and so forth, have the characteristics of foreign currency.") that will be received or paid. Examples include a sale denominated in Swiss francs, a Swiss franc loan, and the holding of Swiss francs by an entity whose [functional currency](https://asc.understandingaccounting.org/glossary/f/#functional-currency "An entity's functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. (See paragraphs 830-10-45-2830-10-45-3830-10-45-4830-10-45-5830-10-45-6 and 830-10-55-3830-10-55-4830-10-55-5830-10-55-6830-10-55-7.)") is the dollar. Likewise, a Swiss franc denominated transaction by a German entity or other entity whose functional currency is not the Swiss franc is a foreign currency transaction. For any entity whose functional currency is not the dollar, a dollar-denominated transaction is also a foreign currency transaction.

##### [830-20-05-3](https://asc.understandingaccounting.org/asc/830/20/#830-20-05-3)

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If taxable exchange gains or tax-deductible exchange losses resulting from an entity's foreign currency transactions are included in net income in a different period for financial statement purposes from that for tax purposes, a deferred tax liability or deferred tax asset should be recognized as required under Topic 740.