What Is Accounting Currency?

Accounting currency is a concept that is the offshoot of globalization due to the fact that it is the effect of the economic interaction between people and businesses from different nations. When businesses with origins from another country conduct business transactions in a different country there is usually a conflict in the accounting methods for that company. The conflict results from the reality that such companies face in the form of different currencies. This type of company must decide what currency it will use as a means for reconciliation in accounts and other accounting activities. This currency of choice is what is referred to as the accounting currency.

An example of the application of accounting currency can be seen in the case of a company from the United States conducting business in Nigeria. Assuming the company is an oil firm with large holdings in Nigeria, it must decide whether to carry out its accounting in the Nigerian currency, the Naira, or in the United States’ currency, the US Dollar. Where the oil company decides to use the USD, such becomes its accounting currency.

It must be noted that even though the hypothetical oil firm decides to use the USD as its accounting currency, it will still use the official Nigerian currency to carry out trade while within the country. Though for its own organizational purposes, the company will use the USD as its accounting currency. Needless to say, this practice simplifies the process of accounting because it would be complicated and quite confusing for companies with international affiliations to conduct their accounting in the national currency of all of the countries in which they have subsidiaries or branches. That would make the whole process of reconciling or balancing their accounts an unwieldy process.

Sometimes companies from countries that have currencies with much less value than that of the country in which they are operating might decide to choose the currency of that country as their accounting currency instead. Such a practice offers benefits to the country with the weaker currency due to the disparity between the exchange rates of the two currencies. For this reason, if an oil company from Nigeria establishes a subsidiary in the United States, it might decide to use the USD as its accounting currency in addition to using the same as its currency of trade in the country. The same company might use a different accounting method while in Nigeria, where it would use the national currency.