Buying in dollars, selling in rupees: keeping multi-currency books in the diamond trade

Why the diamond trade works in more than one currency

Polished diamonds are priced internationally in US dollars: rough, polished from Antwerp, Dubai or Hong Kong, and the Rapaport list all quote dollars. An Indian dealer may buy in dollars, sell to local jewellers in rupees and export in dollars or euros — often all in the same month.

So every purchase and sale carries two things: its amount in its own currency, and the exchange rate to your main currency on that day.

Which rate does a stone’s cost use?

The rate of the day you bought it. A 1 ct stone bought at $5,000 when the dollar was ₹84 cost you ₹4,20,000, and that stays its cost in your books however the dollar moves afterwards. Stock is valued at cost, and cost is what you paid.

The stone’s own price stays in dollars as well — $5,000 — because that is what the supplier’s invoice says and how the stone is quoted. A good system keeps both and never adds a dollar figure to a rupee figure as if they were the same.

Then where does a change in the exchange rate show?

In what you owe and are owed. If you owe the supplier $5,000 and pay when the dollar is ₹85, ₹4,25,000 leaves your bank for a debt you recorded as ₹4,20,000. The ₹5,000 difference is an exchange loss — a cost of the business, shown separately in the profit and loss, not added to the stone.

The same works the other way on sales: an export invoice in dollars that is paid when the dollar is higher brings an exchange gain.

A worked example

On 1 June you buy a 1.00 ct stone for $5,000 at ₹84 to the dollar: its cost is ₹4,20,000 and you owe the supplier $5,000. On 1 August you pay the supplier at ₹85 — ₹4,25,000 leaves the bank, and ₹5,000 is an exchange loss.

On 10 August you sell the stone to a jeweller for ₹4,80,000. The margin on the stone is ₹60,000 (4,80,000 − 4,20,000): the sale is measured against the cost at the purchase rate. The business’s profit on the whole deal is ₹55,000 — the ₹60,000 margin less the ₹5,000 exchange loss — and the books show the two separately, so you can see which part came from trading and which from the currency.

Before the sale, its asking price was $5,800. At the 10 August rate of ₹86, that is worth ₹4,98,800 — the figure to compare with a rupee offer.

What if a customer pays in a different currency from the invoice?

It happens: a dollar invoice paid in euros, or in rupees. The payment settles the invoice at a rate between the two currencies — the one the bank actually gave. €900 at 1 EUR = 1.10 USD settles $990 of a dollar invoice. Record both amounts and the rate, so the invoice closes and nothing is left as a false balance or a false advance.

Rules that keep multi-currency books straight

1. Choose your main currency once, before entering anything — every rupee figure in the books depends on it.
2. Enter every purchase and sale in the currency of its invoice, with that day’s rate.
3. Value stock at cost at the purchase rate; read selling values at today’s rate.
4. Keep today’s rates up to date for quoting, but never re-write past documents with them.
5. Let exchange differences be their own line, so trading margin and currency gains or losses can be told apart.

How Avirat handles currencies

In Avirat every purchase, sale, memo and payment has its currency and its rate. A stone keeps its rates in its purchase’s currency, and its cost in your main currency at the purchase rate — the same figure in the Stock screen, the dashboard, the Balance Sheet and the margin on each sale. Stock at selling price is valued at today’s rate. Picking a dollar stone into a rupee sale fills in its asking price converted to rupees. A payment can settle an invoice in another currency at the rate you enter, and what was settled at a different rate from the invoice goes to exchange difference in the books. Outstanding can be read in any currency.