What is derivative? How many types of derivatives, difference between type of derivatives and journal entries for recording it.

Question

Accepted Answer

Derivative is a financial instrument whose value is derived from an underlying asset or security.

Types of derivatives include futures, options, swaps, and forwards.
Futures are contracts to buy or sell an asset at a predetermined price and date.
Options give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price and date.
Swaps involve exchanging cash flows based on different financial instruments.
Forwards are similar to futures, but are customized contracts between two parties.
Journal entries for recording derivatives depend on the type of derivative and the accounting method used.
For example, a journal entry for recording a futures contract would involve debiting the futures account and crediting the cash account.
It is important to properly account for derivatives to accurately reflect a company's financial position and risk exposure.

Top Accentuate IT Solutions Financial Controller interview questions & answers