How accounting of derivatives is made?

Question

Accepted Answer

Accounting of derivatives involves recognizing fair value changes and recording them in financial statements.

Derivatives are financial instruments whose value is derived from an underlying asset or benchmark.
Accounting for derivatives involves recognizing and measuring fair value changes in the financial statements.
Fair value changes are recorded in the income statement or other comprehensive income, depending on the purpose of the derivative.
Derivatives are initially recognized at fair value on the balance sheet.
Subsequent changes in fair value are recognized as gains or losses in the income statement.
Hedge accounting may be applied to certain derivatives to mitigate the impact of fair value changes on financial statements.
Disclosure requirements exist to provide transparency on the nature and extent of derivative activities.
Examples of derivatives include futures contracts, options, swaps, and forward contracts.

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