Questions: Exchange rates are required in journal entries - Select one only when payments are made to suppliers or received from customers because money has changed hands only at the time of a purchase or sale because the expense or income is realized at that time in accrual-based accounting for all journal transactions involving foreign currencies whenever the exchange rate changes because otherwise they do not affect amounts in journal transactions

The answer is: for all journal transactions involving foreign currencies.

Explanation for each option:

1. Only when payments are made to suppliers or received from customers because money has changed hands:

   • This option is incorrect because exchange rates are not only relevant when money changes hands. They are also necessary for recording transactions at the time they occur, regardless of when the payment is made.

2. Only at the time of a purchase or sale because the expense or income is realized at that time in accrual-based accounting:

   • This option is partially correct in the context of accrual-based accounting, where transactions are recorded when they are incurred, not necessarily when cash is exchanged. However, it is not comprehensive enough because it does not cover all types of journal transactions involving foreign currencies.

3. For all journal transactions involving foreign currencies:

   • This is the correct answer. Exchange rates are required for all journal transactions involving foreign currencies to ensure that the financial records accurately reflect the value of transactions in the reporting currency. This includes purchases, sales, payments, receipts, and any other transactions.

4. Whenever the exchange rate changes because otherwise they do not affect amounts in journal transactions:

   • This option is incorrect because exchange rates are not updated in journal entries every time they change. Instead, the exchange rate at the time of the transaction is used to record the transaction. Subsequent changes in exchange rates may affect the valuation of foreign currency balances but do not retroactively change the amounts recorded in journal entries.