I am using GnuCash for keeping track of my personal finances. My currency is mostly Japanese Yen and I live in Japan. I keep track of every single Yen, every single purchase.
Now I am going on holiday to Europe and I will spent Euros. What is the best way to reflect this in my double-entry accounting?
I was thinking of having new accounts in Euros. However this leads to the problem that there will be many new accounts, which will almost never be used except when on holiday, and my expense reports etc will not really reflect what happened. I will, for example, not any more be able to easily answer how much I spent on gas. "Gas paid for in Yen" and "gas paid for in Euro" will be conceptionally different things, i.e. accounts, something which I don't like.
Or, I was thinking about only booking how much cash I exchange from Yen to Euro, and then make an entirely different, new GnuCash file which records these expenses with their own account structure.
Finally, I was thinking about using the internal currency conversions and just book everything under the Expense accounts in Yen… but this leads to the problem of currency gains and losses, i.e. debit and credit may not balance anymore and I would need to book the currency gains/losses as well.
Keep track of the exchange rate when you transfer your Yen to Euros. Then when you record the transactions, treat it as though you spent Yen but multiply the amount by the exchange rate. You could include a memo stating that the transaction was actually conducted in Euros, for future reference.
Create a new asset account for Euros, and record a transaction with the exchange rate whenever you convert Yen. Then spend from the Euro asset while on vacation into your normal expense accounts. GNUCash takes care of calculating the real value (Yen) of expenses made in other currencies, and should show you the correct changes in net worth when you run reports at the end of the year.
I prefer option 2, because it allows you to track the value of leftover coins and to more easily track changes in cost due to fluctuations in the exchange rates.