The FASB adopted the concept of the functional currency , which is defined as, the currency of the primary economic environment in which the entity operates; normally a currency of the environment is that currency primarily used by an entity to generate and receive cash. The functional currency is used to distinguish between two types of foreign operations, those that are independent and integrated with the parent, for example, a U.S. company may have foreign affiliates in many countries. Each affiliate must be analyzed to determine its individual functional currency. The factors which are used to define a reporting entity’s functional currency.

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Chapter 12, Problem 12.8Q

To determine

Introduction: The FASB adopted the concept of the functional currency , which is defined as, the currency of the primary economic environment in which the entity operates; normally a currency of the environment is that currency primarily used by an entity to generate and receive cash. The functional currency is used to distinguish between two types of foreign operations, those that are independent and integrated with the parent, for example, a U.S. company may have foreign affiliates in many countries. Each affiliate must be analyzed to determine its individual functional currency.

The factors which are used to define a reporting entity’s functional currency.

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