Functional currency
Functional currency refers to the currency of the primary economic environment. It’s a currency used to execute the business operations. For instance, business operations like selling goods, buying materials, paying expenses, collecting revenue, and other operations are executed using functional currency.
In simple words, functional currency is a currency of business operations. Although businesses can deal in other/foreign currencies, but major portion of transactions are executed in the functional currency.
Presentation currency
On the other hand, presentation currency refers to the currency of financial statement generation and presentation of financial performance. This is the currency mentioned on the top of each component of a financial statement like balance sheet, profit and loss statement, statement of changes in equity, and cash flow statement, etc.
Generally, businesses present their financial statement in the same currency as the functional currency. Hence, functional currency can be the same as presentation currency.
Conclusion
Functional currency means the currency of the primary economic environment. This type of currency is used to execute business operations like sales, purchases, expenses, and other transactions.
On the other hand, presentation currency is the currency of financial statement generation. Generally, businesses present their financial performance in their functional currency. Hence, both currencies can be the same and different sometime due to management desires.
Daniyal is passionate about simplifying complex accounting concepts, Founded Accounting with Clarity to share practical insights, technical guidance, and real-world finance advice that empower professionals and business owners to make informed decisions with confidence.