Foreign exchange differences
In one sentenceA gain or loss that arises because the exchange rate changed between the date a foreign currency transaction was recorded and the date it was settled or the statements were prepared.
Simply put
You record the foreign supplier's invoice at the exchange rate on the purchase date. If the rate changes before you pay, you pay more or fewer riyals than you recorded, and the difference is an exchange difference.
Balances not yet settled (suppliers and banks in a foreign currency) are revalued at the period-end rate, and the difference appears in the income statement.
Worked example
An electronics store bought goods for 10,000 dollars at an exchange rate of 3.75, and on payment the rate was 3.76 (two assumed rates for illustration).
Recorded on the purchase date: 10,000 × 3.7537,500 SAR
Paid on the payment date: 10,000 × 3.7637,600 SAR
Foreign exchange loss: 37,600 − 37,500100 SAR
Don't confuse it with
Translation differencesDifferences from translating the statements of a subsidiary in another currency go to other comprehensive income, not to profit as transaction differences do.