Functional currency

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.

International Accounting Standards (IAS) and U.S. Generally Accepted Accounting Principles (GAAP) provide rules for translation of foreign currency transactions and financial statements. SFAS 52 introduced the concept of functional currency, defined as "the currency of the primary economic environment in which the entity operates; normally, that is, the currency of the environment in which an entity primarily generates and expends cash."