Question

What exactly is a functional currency and why should we be concerned with it?

Answer 1

Functional currency is the main currency which is used by the businesses and the units of the business in its main operations and it would be the main currency which is used in various business operations and recording of various amounts in books of accounts.

We should be concerned with the function currency because it will be helping us in order to convert all the earnings of the business in terms of the functional currency and the businesses profitability will be determined by the functional currency and it is not based on the domestic currency so it will have to be accounted info books of accounts and financials of the company and all the receivables and payables should be translated into those foreign exchanges and hence they should be trying to to incorporate other currency into the work and hence it would be a matter of concern.

It could be example through various multinational companies if their domestic operations are carried out from different places of world and their main operating currency maybe American Dollars and even though they would not have been the American company.