What is the difference between local currency and functional currency?

The local currency is the national currency of the country where an entity is located. The functional currency is the currency of the primary economic environment in which an entity operates. For accounting purposes, any currency other than an entity’s functional currency is a foreign currency for that entity.Click to see full answer. Also to know is, what is the difference between functional currency and reporting currency?The key difference between functional currency and reporting currency is that functional currency is the currency of the primary economic environment in which the entity operates whereas reporting currency is the currency in which financial statements are presented. what does local currency mean? In economics, a local currency is a currency that can be spent in a particular geographical locality at participating organisations. A regional currency is a form of local currency encompassing a larger geographical area. The currency may not be backed by a national government or be legal tender in the UK. Considering this, what does functional currency mean? Functional currency refers to the main currency used by a business or unit of a business. It is the monetary unit of account of the principal economic environment in which an economic entity operates.How do you choose functional currency? When determining the functional currency of an entity’s foreign operations, consider the following factors: Autonomy. Whether the operation is essentially an extension of the reporting entity, or it can operate with a significant degree of autonomy. Proportion of transactions. Proportion of cash flows. Debt service.