Payables uses the exchange rate from the invoice when it accounts for the applied Prepayment and associated tax distributions. This credits the prepaid asset account for the correct amount. Because the prepayment application pays the invoice, Payables then records any gain or loss between the functional currency amount of the payment (original prepayment) and the functional currency amount of the invoice (invoice amount that the prepayment relieved). If the exchange rate accounting causes unequal debits and credits for the transaction, Payables accounts for that difference in a rounding entry to balance the transaction.