So when you create an adjustment entry why should you reverse when the entry was based on a certain exchange rate?

If the balance is held in a currency other than the base currency of the company we don't know how much it will be worth until we exchange it.

If the base currency of my company is USD and I have balances in EUR then I don't know how many USD those balances will be worth until I change them to dollars. The same way I don't know how many USD I will get from a Customer who owes me 100 € from a 200 € invoice.

So the adjustment entry translates the balances using the rate on that day so I can see my balances AS IF I exchanged them all that day (when I have an unrealized gain or lose) but needs to be reversed since I didn't really exchange anything - I will do that later (when I realize the gain or lose).

The rate of the entry is not the rate I will get in the future when I exchange money.

I need to do this at the end of a reporting period so all bank balances and balances due and owed can be added together to show a balance sheet in one currency.

Then the day after the end of the month or quarter I reverse this entry. The entry is the value of "what I COULD have gained or lost if I exchanged all foreign currency that day". But since I still have the currency the next day it will be a different gain or loss and the realized gain or loss will happen when I pay, receive payment or exchange my bank balances.

Thanks a lot Ray. I get the logic now. That it only becomes realized when you do the actual exchange.