How to Show Cash Flow Hedge in Financial Statements

 To show cash flow hedge in financial statements is the part of hedge accounting Learn part 1 and part 2. 

When company enters in cash flow hedge contract, it will open cash flow hedge reserve account. All hedging adjustment will be in this account.

1. When transfer money in this fund like we pay premium for Life insurance ., we have the reserve for such premium 

Cash flow Hedge reserve account Debit 

Cash account credit

2. When I invest in cash flow hedge

cash flow hedge investment dr. 

Cash flow reserve account cr.

This investment may be in future contracts, option contracts, put option, swap, derivatives, or diversify investment instruments. 

3. When actual loss happens 

Loss on asset or liability due to happening of risk Account dr.

asset or liability account credit

( Asset may decrease or liability more increase) 

4. When your cash flow hedge will support to you

Asset increase or liability decrease account debit 

Earning with cash flow hedge investment Credit 

5. When loss on cash flow hedge due to fair value change 

Fair value change of cash flow hedge loss account debit

cash flow hedge investment Credit 

In balance Sheet 

in asset side 

cash flow hedge investment

Net Adjusted increase in the value of asset or decrease in liability 

{ cash flow hedge profit - loss due to cash flow risk happened}

In the liability side

Net Adjusted increase in the value of asset or decrease in liability 

{ cash flow hedge profit - loss due to cash flow risk happened}

In profit and loss

because profit and loss adjustment already done in the balance sheet, we can not show in profit and loss account. It will be duplicate. Yes, if not show above adjustment in the balance sheet, we can show here

In expenses side

actual loss due to cash flow risk happened

in the income side

Gain due to cash flow hedge investment

If risk does not happened and there is change of fair value of cash flow hedge

so, it will show 

in expenses side of profit and loss account 

Fair value change of cash flow hedge

See example,