Clearing, FX Gain/Loss & CTA
Understand how clearing works in Light, why FX differences occur when settling AP and AR, and when Currency Translation Adjustments (CTA) are posted in group reporting.
Overview
When a bill or invoice is paid in Light, the system must bring the related Accounts Payable (AP) or Accounts Receivable (AR) balance to zero.
This zeroing process is called clearing.
This article explains:
- What clearing does
- Why foreign exchange (FX) differences occur during clearing
- When and why Currency Translation Adjustments (CTA) are posted
- How these affect your financial reports
These outcomes are expected system behavior — not errors.
What is Clearing
When you post a bill or invoice, Light creates ledger entries showing either:
- Money you owe (AP), or
- Money owed to you (AR).
When you post a bill or invoice → Light creates ledger entries that say you owe money (AP) or money is owed to you (AR).
When you later settle that bill or invoice (by bank payment, credit note, refund etc) → Light must remove that debt.
Clearing = the act of linking the two together and bringing the exposure to zero.
Once clearing is done, the AP or AR for that document should be zero.
Why additional lines are needed
When transactions involve foreign currency, the exchange rate at the posting date may differ from the rate at the payment date.
Because exchange rates change, Light must book the resulting difference.
Otherwise, the AP or AR balance would not mathematically zero out.
This is why additional ledger movements appear.
These extra postings can be one of two types:
- Realised FX Gain/Loss
- Currency Translation Adjustment (CTA)
Realised FX gain / loss
This is booked when the FX change actually affects real money.
Example:
- You post a EUR 100 bill.
- Two weeks later, you pay it from a GBP account.
- During those 2 weeks → the EUR/GBP rate changed
The amount of GBP withdrawn may not match the GBP value originally recorded.
This difference represents a real financial impact, so Light books it as a realised FX gain or loss.
(Example: Ledger entry showing an extra line for “Realised FX Gain/Loss”)
CTA (Currency Translation Adjustment)
CTA is also known as the Currency Transaction Reserve
A CTA entry is different — it does not represent a real gain or loss.
Instead, it ensures that group-level financial reporting remains mathematically consistent when multiple currencies are involved.
CTA entries occur only when your entity currency differs from your group reporting currency.
In this case, Light posts a CTA line to balance the translated group currency values.
Key points about CTA:
- It has no impact on cash.
- It does not affect Profit & Loss (P&L).
- It appears only in consolidated or group reporting.
When does this appear on AR (sales invoices)?
The same logic applies to Accounts Receivable.
When a customer pays an invoice at a different FX (exchange) rate than when it was posted Light clears the AR balance and the FX difference.
This ensures that AR balances correctly reach zero.
(Example: Paid invoice showing clearing and FX adjustment lines)
Quick Reference — Mental Model
| ConceptMeaning | |
|---|---|
| Clearing | Closes the loop between posting and payment |
| Realised FX Gain/Loss | Reflects real money movement caused by FX changes |
| CTA | Adjusts only group currency translation — no cash impact |
Why this matters
Without these automatic adjustments, your AP or AR balances would not fully zero out when exchange rates move.
Most ERPs require accountants to manually add adjusting journals to fix this.
In many ERPs, accountants must post manual adjusting journals to fix this.
Light handles this automatically — consistently, and in real time — ensuring your ledgers stay accurate.
FAQs
Q: Why does CTA appear only on some transactions?
A: CTA appears only when your group currency differs from your entity currency. It’s a reporting translation effect, not a transaction-level impact.
Q: Does CTA affect my Profit & Loss (P&L)?
A: No. CTA impacts only the balance sheet — it does not affect P&L.