Unrealized Gain/loss & Early extinguishment of debt

Unrealized Gain/loss

Even before you make or take payment on international transactions, or withdraw money from a foreign bank account, there is the potential for changes in the exchange rate to affect the value of your transactions and accounts. This potential is referred to as an unrealized gain or loss.

For example, if you have a bank account in USA and the value of your local currency drops compared to the US Dollar, the value of your USA bank account goes up. You have the same number of Dollars, but those Dollars are worth more in your local currency than they used to be. Since those Dollars still are in your bank account, however, you haven't taken advantage of, or realized, their increased value.

If the account is an asset account

If the Currency – Unrealized Gain/Loss Report shows a currency gain for a checking account or another asset account, credit the Unrealized Currency Gain/Loss account, and enter an equal debit amount for the exchange account associated with the asset account. (The Unrealized Currency Gain/Loss account should be an expense account.)

If the Currency – Unrealized Gain/Loss Report shows a currency loss for the asset account, debit the Unrealized Currency Gain/Loss account, and enter an equal credit amount for the exchange account associated with the asset account.

If the account is a liability or equity account

If the Currency – Unrealized Gain/Loss Report shows a currency gain for a liability or equity account, credit the Unrealized Currency Gain/Loss account, and enter an equal debit amount for the exchange account associated with the liability or equity account.

If the Currency – Unrealized Gain/Loss Report shows a currency loss for the liability or equity account, debit the Unrealized Currency Gain/Loss account, and enter an equal credit amount for the exchange account associated with the liability or equity account.

Early extinguishment of debt

The payment of a debt in full before it is due. Early extinguishment of debt is good for the borrower because it relieveshim/her of the debt, but it deprives the lender of interest he would have received otherwise. As a result, somelenders attach prepayment

Penalties to loans to disincentivize early extinguishment. Early extinguishment of debt is also called prepayment.