A futures contract is a form of derivative financial instrument that occurs between two parties. The first part agrees to buy an asset from the second to a given future date for an immediately indicated price. Unlike futures, these types of contracts are not traded on the stock markets; they take place between two private parties. The mechanics of a futures contract are quite simple, which is why these types of derivatives are popular as risk hedging and as speculative opportunities. To know how futures contracts are accounted for, we need to fundamentally understand the underlying mechanisms and a few simple newspaper articles. As of the december 31, 2018 balance sheet closing date, the exchange rate has changed. The EUR/USD spot price is now 1.20 and the futures price is 1.24. The entity must now account for changes in the fair value of the asset (in this case the receivables portfolio) and the foreign exchange futures contract. Due to recent international and national accounting changes, research and confidence in the current accounting treatment of forwards and options can be cumbersome. I wrote a short article to help clients better understand the accounting treatment of these financial instruments. Post-assessment: Futures and options contracts (if an entity has not adopted hedging accounting) are accounted for at fair value. The position of the contract is indicated on the market and all profits or losses are recorded in net income.
The contract provides that the company will sell 100,000 euros in 60 days (30 January 2019) at a rate of eur /USD-1.25 and will receive the difference between that rate and the price on the billing date. The effect of this contract is to fix the value of the EUR 100,000 that the company receives at 125,000 USD. An appointment change contract is an agreement under which a company agrees to purchase a certain amount of foreign currency at some point in the future. The purchase is made at a predetermined exchange rate. By entering into this contract, the buyer can protect himself against subsequent fluctuations in the exchange rate of a foreign currency.