It then prepares periodic reports of its position (balance sheet) and activity (income and cash flow statements) in that functional currency.
When various QBUs are combined, these reports are translated and consolidated to become financial statements.
Businesses using the accrual method of accounting may recognize revenue or expense in one period and receive or pay it in another.
When an accrued item is settled, the difference due to exchange rate movement in the amount accrued and the amount settled is treated as foreign exchange gain or loss.
This gain or loss is recognized in the same manner as the underlying transactions, such as an ordinary travel expense.