---
title: "Functional currency"
description: "What is functional currency? The currency a company's books are kept in, set by its main economic environment. See how it works in a group, with an example."
url: https://1flux.ai/glossary/functional-currency
last_updated: 2026-10-10
---

[Accounting](https://1flux.ai/glossary#accounting)

# Functional currency

What is functional currency, and how does each company in a group choose one?

Glossary Updated 10 October 2026

Definition

Functional currency is the currency of the main economic environment in which a business operates, and the currency its books are kept in.

## What is functional currency in a group?

Transactions in any other currency are converted into the functional currency when they’re recorded. In a group, each company has its own: a UAE subsidiary typically uses AED and an Indian one INR. The group then reports in a presentation currency, translating each company’s figures at the appropriate rates. Under IFRS, IAS 21 sets out how to determine it, based on the currency that mainly drives prices and costs.

Example: a company buys from China in US dollars and sells locally in SAR; its functional currency is SAR, and each USD invoice is converted at the rate on its date.

It’s often called base currency. Rate moves between recording and settlement create an [FX gain or loss](https://1flux.ai/glossary/fx-gain-and-loss).

In 1flux

Each legal entity has its own base currency, and journal lines store both the transaction amount and the entity-currency amount. [See Arabic-ready data and multi-currency](https://1flux.ai/platform/arabic-and-multi-currency)

Related

## Keep exploring

### [FX gain and loss](https://1flux.ai/glossary/fx-gain-and-loss)

The effect of exchange-rate moves on foreign-currency transactions.

### [Financial consolidation](https://1flux.ai/glossary/financial-consolidation)

Combining a group's companies into one set of figures.

### [Currency translation difference](https://1flux.ai/glossary/currency-translation-difference)

The balancing amount from translating a subsidiary's books at different rates.

### [Multi-currency and Arabic](https://1flux.ai/platform/arabic-and-multi-currency)

Any currency per document, three-decimal rounding, realised FX, and Arabic names, search and quotations.

Last updated 10 October 2026