What is temporal method of currency translation in SAP FI-LC - Consolidation?

SAP Term: temporal method of currency translation

• Component: FI-LC

• Component Name: Consolidation

• Description: A currency translation method, according to which balance sheet items are translated using the exchange rates that correspond to their valuation base in local currency: Historical rates for acquisition and production costs Current rate for daily values including receivables and payables The temporal method applies the "single legal entity" theory to currency translation. It assumes that the consolidation group represents a single economic unit, and that its companies post data and prepare balances in the currency of the parent, regardless of their country of operation. Currency translation must not affect the valuation base of the balance sheet items or the temporal consideration of revenue and expense. It entails changing the unit of measure, but not the bases of valuation and the preparation of balance sheets.

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• Key Concepts: 
  Temporal method of currency translation is a method used in SAP FI-LC Consolidation to convert the financial statements of a company from one currency to another. This method uses the exchange rate that was in effect at the time of the transaction. This method is used when the exchange rate fluctuates over time and it is necessary to accurately reflect the financial statements in the target currency. 
  
  How to use it: 
  In order to use the temporal method of currency translation, you must first set up a currency translation type in SAP FI-LC Consolidation. This type will define the exchange rate that will be used for each transaction. Once this is done, you can then enter the transactions into SAP FI-LC Consolidation and they will be automatically converted using the exchange rate defined in the currency translation type. 
  
  Tips & Tricks: 
  When setting up a currency translation type, it is important to ensure that you select the correct exchange rate for each transaction. This will ensure that your financial statements are accurately reflected in the target currency. Additionally, it is important to keep track of any changes in exchange rates over time so that you can update your currency translation type accordingly. 
  
  Related Information: 
  For more information on setting up and using temporal method of currency translation in SAP FI-LC Consolidation, please refer to SAP Help documentation or contact your local SAP support team.