# ASC 815-30: Derivatives and Hedging — Cash Flow Hedges Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/30/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:37:35.233Z to 2026-09-10T01:38:16.160Z Record version: sha256:9bcf01c1327266fe242e4e3e2aa260c336bb4d96e642f4b97aa44c1a7c3f139b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30: Derivatives and Hedging — Cash Flow Hedges ### Machine-generated study aids ```json { "summary": "ASC 815-30 provides the incremental accounting for cash flow hedges — derivatives designated as hedging the variability in expected future cash flows of a forecasted transaction or of a recognized variable-cash-flow asset/liability. The entire change in fair value of the hedging instrument that is included in the assessment of effectiveness is recorded in other comprehensive income and reclassified into earnings in the same period(s) the hedged forecasted transaction affects earnings, presented in the same income statement line item as the hedged item. The Subtopic also governs excluded components, quantitative effectiveness methods for interest rate hedges, and discontinuation/dedesignation (including immediate reclassification when the forecasted transaction is probable of not occurring).", "key_points": [ "When a hedging relationship is highly effective, the entire change in fair value of the designated hedging instrument that is included in the assessment of effectiveness is recorded in other comprehensive income (815-30-35-3), and is later reclassified to earnings in the same period(s) the hedged forecasted transaction (or the asset acquired/liability incurred) affects earnings, in the same income statement line item as the hedged item (815-30-35-3(b), 35-38, 35-39).", "Components excluded from the assessment of effectiveness (e.g., an option's time value, a forward's spot-forward difference) are recognized in earnings under either the amortization approach (815-20-25-83A) or the mark-to-market approach (815-20-25-83B), presented in the same line item as the hedged item's earnings effect (815-30-35-3(a)).", "Entities that do not report earnings are not permitted to use cash flow hedge accounting (815-30-15-2(a)).", "Three quantitative effectiveness methods are available for interest rate swap cash flow hedges — change-in-variable-cash-flows, hypothetical-derivative, and change-in-fair-value — but the change-in-variable-cash-flows method may not be used if the swap's fair value is not somewhat near zero at inception (815-30-35-10, 35-13, 35-14).", "A loss must be reclassified immediately from AOCI into earnings to the extent continued deferral would result in recognizing a net loss on the combination of the hedging instrument and the hedged transaction (815-30-35-40 through 35-41); recognition of impairment or credit losses on the related asset or liability likewise triggers immediate reclassification of an offsetting net gain (815-30-35-43).", "Hedge accounting is discontinued prospectively if a criterion is no longer met, the derivative expires or is sold/terminated/exercised, or the designation is removed; the existing net gain or loss remains in AOCI and is reclassified as the forecasted transaction affects earnings (815-30-40-1, 40-2).", "If it becomes probable the forecasted transaction will not occur by the end of the originally specified period or within an additional two months (absent rare extenuating circumstances), the AOCI amount is reclassified into earnings immediately and may not later be returned to AOCI (815-30-40-4 through 40-6); disclosures include the estimated net amount expected to be reclassified within the next 12 months (815-30-50-1(c))." ], "categories": [ "Derivatives and hedging", "Subsequent measurement", "Presentation", "Disclosure" ], "audience_level": "advanced", "student_note": "Cash flow hedges are heavily tested because of the OCI-then-reclassify mechanic: the entire effective change in fair value goes to OCI (no separate ineffectiveness recognition after ASU 2017-12) and leaves AOCI only when the hedged transaction hits earnings. The classic trap is the two-month rule — a discontinued hedge keeps its gain or loss in AOCI unless the forecasted transaction becomes probable of not occurring by the original date plus two months, which forces immediate reclassification to earnings.", "related_topics": [ "815-20", "815-25", "815-10", "830-20", "220-10", "954-815" ], "key_concepts": [ "cash flow hedge", "accumulated other comprehensive income", "forecasted transaction", "highly effective", "excluded component", "hypothetical-derivative method", "dedesignation", "reclassification into earnings" ] } ``` Source downloaded (UTC): 2026-09-10T01:37:35.233Z to 2026-09-10T01:37:35.233Z Record version: sha256:042e3f0eff97031150b15c9bd130c58850964e63846cda405f48357661de26d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/815/30/#00-status) SEC content: no ##### [815-30-00-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:35.233Z to 2026-09-10T01:37:35.233Z Record version: sha256:0d406b92f0e6bac419c6b96a0d8f3676861e0685e38597a30830cfb85c715491 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Contractually Specified ComponentSupersededAccounting Standards Update No. 2025-0911/25/2025
Contractually Specified ComponentAddedAccounting Standards Update No. 2017-1208/28/2017
Credit RiskAmendedAccounting Standards Update No. 2017-1208/28/2017
Credit RiskAmendedAccounting Standards Update No. 2010-0802/02/2010
Financial InstrumentAmendedAccounting Standards Update No. 2024-0203/29/2024
Interest Rate RiskAmendedAccounting Standards Update No. 2017-1208/28/2017
Intrinsic ValueAddedAccounting Standards Update No. 2010-0802/02/2010
London Interbank Offered Rate (LIBOR) Swap RateAddedAccounting Standards Update No. 2018-1610/25/2018
London Interbank Offered Rate Swap RateSupersededAccounting Standards Update No. 2018-1610/25/2018
Spot RateAddedAccounting Standards Update No. 2014-0603/14/2014
Time ValueAddedAccounting Standards Update No. 2010-0802/02/2010
TransactionAmendedAccounting Standards Update No. 2024-0203/29/2024
815-30-05-1AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-1AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-2SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-35-3AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-3AmendedAccounting Standards Update No. 2010-0802/02/2010
815-30-35-4SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-35-5AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-7 through 35-14
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-8AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-35-15AAddedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-16AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-19AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-21SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-35-22AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-23AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-25 through 35-27
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-26AmendedAccounting Standards Update No. 2019-0404/25/2019
815-30-35-28SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-35-29AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-30SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-35-31AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-33AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-34AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-35 through 35-37
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-35-37ASupersededAccounting Standards Update No. 2025-0911/25/2025
815-30-35-37AAddedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-37B through 35-37M
AddedAccounting Standards Update No. 2025-0911/25/2025
815-30-35-38AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-39AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-41AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-41A through 35-41C
AddedAccounting Standards Update No. 2017-1208/28/2017
815-30-35-42AmendedAccounting Standards Update No. 2016-1306/16/2016
815-30-35-43AmendedAccounting Standards Update No. 2016-1306/16/2016
815-30-35-44AmendedAccounting Standards Update No. 2015-0101/09/2015
815-30-40-1AAddedAccounting Standards Update No. 2016-0503/10/2016
815-30-40-2AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-40-5AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-40-6AAddedAccounting Standards Update No. 2017-1208/28/2017
815-30-45-1 through 45-3
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-50-1AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-50-2AmendedAccounting Standards Update No. 2025-1112/08/2025
815-30-50-2AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-50-2AmendedAccounting Standards Update No. 2011-0506/16/2011
815-30-50-4AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-50-5AddedAccounting Standards Update No. 2017-1208/28/2017
815-30-50-6AddedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-1 through 55-4
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-2 through 55-4
AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-8 through 55-11
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-13 through 55-16
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-15AmendedAccounting Standards Update No. 2014-0603/14/2014
815-30-55-20 through 55-23
AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-20 through 55-22
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-24AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-25AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-28AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-29AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-32AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-34 through 55-39
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-55-41AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-41 through 55-43
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-49AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-54 through 55-57
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-60AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-60AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-61AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-61AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-62SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-55-63AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-64AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-65SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-55-66AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-68 through 55-70
AmendedMaintenance Update 2014-07 (PDF)03/17/2014
815-30-55-70AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-71AmendedAccounting Standards Update No. 2014-0905/28/2014
815-30-55-72AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-72AmendedAccounting Standards Update No. 2014-0905/28/2014
815-30-55-74 through 55-76
AmendedMaintenance Update 2014-07 (PDF)03/17/2014
815-30-55-75AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-78AmendedMaintenance Update 2014-07 (PDF)03/17/2014
815-30-55-81 through 55-83
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-89AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-91AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-93SupersededAccounting Standards Update No. 2017-1208/28/2017
815-30-55-93AAddedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-95AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-97 through 55-99
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-98AAddedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-101AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-107AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-109AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-117AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-124AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-126AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-127AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-129AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-132AmendedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-134AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-134 through 55-148
AddedAccounting Standards Update No. 2017-1208/28/2017
815-30-55-138AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-146 through 55-148
AmendedAccounting Standards Update No. 2025-0911/25/2025
815-30-55-149 through 55-181
AddedAccounting Standards Update No. 2025-0911/25/2025
Source downloaded (UTC): 2026-09-10T01:37:38.874Z to 2026-09-10T01:37:38.874Z Record version: sha256:4327e1cac2a981b08428d97707bec73f19be5f0c23c8812455910e1bfcffc00e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/815/30/#05-overview-and-background) SEC content: no ##### [815-30-05-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:38.874Z to 2026-09-10T01:37:38.874Z Record version: sha256:81b1fe46529a98a9ff1e83aba02e1725a8c03ed3c6a8b4bf8c0b666b9af41068 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides incremental guidance on accounting for and financial reporting of [cash flow hedges](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") established under the criteria in Subtopic815-20such as subsequent measurement and dedesignation of a hedging relationship. Implementation guidance and examples specific to cash flow hedges are included in both Subtopic 815-20 and this Subtopic. Source downloaded (UTC): 2026-09-10T01:37:42.153Z to 2026-09-10T01:37:42.153Z Record version: sha256:0ee6f638a874d4d5b47ab223a87c20a8a52cb94990458ac6fa7658cb2d6517cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/815/30/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [815-30-15-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:42.153Z to 2026-09-10T01:37:42.153Z Record version: sha256:1fa6ab74bb6da109c1fb0a4d9740f29742652ae47d6862c062696825f75c3027 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in Subtopic 815-20, see Section 815-20-15, with specific exceptions noted below. #### Entities ##### [815-30-15-2](https://asc.understandingaccounting.org/asc/815/30/#815-30-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:42.153Z to 2026-09-10T01:37:42.153Z Record version: sha256:89365537363f54d490b983de75782fa90a38848d789ce8491a7aad08336d74d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic does not apply to the following entities: 1. a Entities that do not report earnings. Those entities are not permitted to use [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") accounting because they do not report earnings separately. ##### [815-30-15-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-15-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:42.153Z to 2026-09-10T01:37:42.153Z Record version: sha256:dc6ff64490445722339b302dec09f2698b5e90684e3763d8db5d223935b97458 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consistent with the provisions of Topic 958, this Subtopic does not prescribe how a not-for-profit entity (NFP) should determine the components of an operating measure, if one is presented. For guidance on the application of this Subtopic by not-for-profit health care entities, see Subtopic 954-815. Source downloaded (UTC): 2026-09-10T01:37:49.127Z to 2026-09-10T01:37:49.127Z Record version: sha256:d2570e40e001e5e390f34ca7339bf8d1ff16a12e211c1b99eb242881364a7b78 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/815/30/#25-recognition) SEC content: no ##### [815-30-25-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:49.127Z to 2026-09-10T01:37:49.127Z Record version: sha256:daef3d0721b51173fd066779c29729a9d3765f6c7823e2bc284496bd53b71ab0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 815-20-25 for the criteria under which an entity may designate a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") as hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:7c31b10cb91ae9daa146ba72fa3fc7010120280b6aff4969fe68dd5db4003a5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/815/30/#35-subsequent-measurement) SEC content: no ##### [815-30-35-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:9983abbf7adb9bb71ff147e5d8839d16245873314968fd5862b521cefba26bc8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Section is organized as follows: 1. a Subsequent recognition and measurement of gains and losses on hedging instrument 2. b Reclassifications from accumulated other comprehensive income into earnings 3. c Hedging relationship's timing that involves uncertainty within a range 4. d [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). #### Subsequent Recognition and Measurement of Gains and Losses on Hedging Instrument ##### [815-30-35-2](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:2f3c4549aea48aab9bddaf6f0085b5fce41ae4bf3009b0e4a55ebd55b84f4928 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:0c4e65a36f729d4ce381a16aef4d19abec897d93b61553280dc2bfc074b4b88d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the relationship between the hedged item and hedging instrument is highly effective at achieving offsetting changes in cash flows attributable to the hedged risk, an entity shall record in [other comprehensive income](https://asc.understandingaccounting.org/glossary/o/#other-comprehensive-income "Revenues, expenses, gains, and losses that under generally accepted accounting principles (GAAP) are included in comprehensive income but excluded from net income.") the entire change in the fair value of the designated hedging instrument that is included in the assessment of hedge effectiveness. More specifically, a qualifying [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") shall be accounted for as follows: 1. a An entity's defined risk management strategy for a particular hedging relationship may exclude a specific component of the gain or loss, or related cash flows, on the hedging derivative from the assessment of hedge effectiveness (as discussed in paragraphs [815-20-25-81 through 25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81)). That excluded component of the gain or loss shall be recognized in earnings either through an amortization approach in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) or through a mark-to-market approach in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). Under either approach, the amount recognized in earnings for an excluded component shall be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A). For example, if the effectiveness of a hedging relationship with an option is assessed based on changes in the option's [intrinsic value](https://asc.understandingaccounting.org/glossary/i/#intrinsic-value "The amount by which the fair value of the underlying stock exceeds the exercise price of an option. For example, an option with an exercise price of $20 on a stock whose current market price is $25 has an intrinsic value of $5. (A nonvested share may be described as an option on that share with an exercise price of zero. Thus, the fair value of a share is the same as the intrinsic value of such an option on that share.)"), the changes in the option's [time value](https://asc.understandingaccounting.org/glossary/t/#time-value "The portion of the fair value of an option that exceeds its intrinsic value. For example, a call option with an exercise price of $20 on a stock whose current market price is $25 has intrinsic value of $5. If the fair value of that option is $7, the time value of the option is $2 ($7 - $5).") would be excluded from the assessment of hedge effectiveness and either may be recognized in earnings through an amortization approach in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) or currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). 2. b Amounts in accumulated other comprehensive income related to the derivative designated as a hedging instrument included in the assessment of hedge effectiveness are reclassified to earnings in the same period or periods during which the hedged forecasted transaction affects earnings in accordance with paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) and presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A). The balance in accumulated other comprehensive income associated with the hedged [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") shall be the cumulative gain or loss on the derivative instrument from inception of the hedge less all of the following: 1. 1 [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 2. 1a The derivative instrument's gains or losses previously reclassified from accumulated other comprehensive income into earnings pursuant to paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . 3. 1b The cumulative amount amortized to earnings related to excluded components accounted for through an amortization approach in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). 4. 1c The cumulative change in fair value of an excluded component for which changes in fair value are recorded currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). 5. 2 [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). If hedge accounting has not been applied to a cash flow hedging relationship in a previous effectiveness assessment period because the entity's retrospective evaluation indicated that the relationship had not been highly effective in achieving offsetting changes in cash flows in that period, the cumulative gain or loss on the derivative referenced in (b) would exclude the gains or losses occurring during that period. That situation may arise if the entity had previously determined, for example, under a regression analysis or other appropriate statistical analysis approach used for prospective assessments of hedge effectiveness, that there was an expectation in which the hedging relationship would be highly effective in future periods. Consequently, the hedging relationship continued even though hedge accounting was not permitted for a specific previous effectiveness assessment period. 3. c [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 4. d If a non-option-based contract is the hedging instrument in a cash flow hedge of the variability of the functional-currency-equivalent cash flows for a recognized foreign-currency-denominated asset or liability that is remeasured at spot exchange rates under paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1), an amount that will both offset the related transaction gain or loss arising from that remeasurement and adjust earnings for that period's allocable portion of the initial spot-forward difference associated with the hedging instrument (cost to the purchaser or income to the seller of the hedging instrument) shall be reclassified each period from other comprehensive income to earnings if the assessment of effectiveness is based on total changes in the non-option-based instrument's cash flows.If an option contract is used as the hedging instrument in a cash flow hedge of the variability of the functional-currency-equivalent cash flows for a recognized foreign-currency-denominated asset or liability that is remeasured at spot exchange rates under paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1) to provide only one-sided offset against the hedged [foreign exchange risk](https://asc.understandingaccounting.org/glossary/f/#foreign-exchange-risk "The risk of changes in a hedged item's fair value or functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates."), an amount shall be reclassified each period to or from other comprehensive income with respect to the changes in the [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") that result in a change in the hedging option's intrinsic value. In addition, if the assessment of effectiveness is based on total changes in the option's cash flows (that is, the assessment will include the hedging instrument's entire change in [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.")—its entire gain or loss), an amount that adjusts earnings for the amortization of the cost of the option on a rational basis shall be reclassified each period from other comprehensive income to earnings. This guidance is limited to foreign currency hedging relationships because of their unique attributes and is an exception for foreign currency hedging relationships. 5. e [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 6. f [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:6372a732bc3bf44fcb6b63b8ed3d3c7b40e39fb0409254563bae5a902c7f6824 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:0fe04823665b43f8818d0f2d7947d26dee91cc8bab981bd21d84223f841ea47f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity has designated and documented that it will assess effectiveness and measure hedge results of a cash flow hedge of foreign currency risk on an after-tax basis as permitted by paragraph [815-20-25-3(b)(2)(vi)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), the portion of the gain or loss on the hedging instrument that exceeded the loss or gain on the hedged item shall be included as an offset to the related tax effects in the period in which those tax effects are recognized. ##### [815-30-35-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:f915e5f9ebb8e06377b31865acf9b1bd73f2183a81bab451b6b5c6eff30394ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Remeasurement of the hedged foreign-currency-denominated assets and liabilities is based on the guidance in Topic 830, which requires remeasurement based on spot exchange rates, regardless of whether a cash flow hedging relationship exists. ##### [815-30-35-7](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:0b3d7cf6fd408ee4251752d4fc0a1c1192feaab05b89c45efe7b673f64bc3534 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 1 through 4 (see paragraphs [815-30-55-1A through 55-19](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-1A) ) illustrate assessing hedge effectiveness. Example 10 (see paragraph [815-30-55-63](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-63)) illustrates the application of paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3). ##### [815-30-35-8](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-8) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:c9b8bbf9a625d8d35ea5fabcf51529e5ba66c4da93279719eab5a11dfd01e6c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remainder of this guidance addresses the following matters: 1. a Application to single cash flow hedge of a forecasted sale or purchase on credit for foreign exchange risk 2. b Assessing hedge effectiveness in certain cash flow hedges involving [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") when effectiveness is assessed on a quantitative basis 3. c Hedging relationship in which hedge effectiveness is based on an option's terminal value. 4. d Change in the designated hedged risk. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)The remainder of this guidance addresses the following matters: 1. a Application to single cash flow hedge of a forecasted sale or purchase on credit for foreign exchange risk 2. b Assessing hedge effectiveness in certain cash flow hedges involving [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") when effectiveness is assessed on a quantitative basis 3. c Hedging relationship in which hedge effectiveness is based on an option's terminal value 4. d Change in the contractually specified interest rate for forecasted interest payments on choose-your-rate debt. ##### [815-30-35-9](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:4253a5f8a70f6ba48da05c79eb49b2cb81d14d3310046cb36e2f1b1e1391298b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a single cash flow hedge that encompasses the variability of functional-currency-equivalent cash flows attributable to foreign exchange risk related to the settlement of a foreign-currency-denominated receivable or payable resulting from a forecasted sale or purchase on credit, the guidance in paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) is applied as follows: 1. a The gain or loss on the derivative instrument that is included in the assessment of hedge effectiveness is reported in other comprehensive income during the period before the forecasted purchase or sale. 2. b The functional currency interest rate implicit in the hedging relationship as a result of entering into the forward contract is used to determine the amount of cost or income to be ascribed to each period of the hedging relationship. The cash flow hedging model for recognized foreign-currency-denominated assets and liabilities requires use of the interest method at the inception of the hedging relationship to determine the amount of cost or income to be ascribed to each relevant period of the hedging relationship. However, for simplicity, in hedging relationships in which the hedged item is a short-term non-interest-bearing account receivable or account payable, the amount of cost or income to be ascribed each period can also be determined using a pro rata method based on the number of days or months of the hedging relationship. In addition, in a short-term single cash flow hedging relationship that encompasses the variability of functional-currency-equivalent cash flows attributable to foreign exchange risk related to the settlement of a foreign-currency-denominated receivable or payable resulting from a forecasted sale or purchase on credit, the amount of cost or income to be ascribed each period can also be determined using a pro rata method or a method that uses two foreign currency forward exchange rates. The first foreign currency forward exchange rate would be based on the maturity date of the forecasted purchase or sale transaction. The second foreign currency forward exchange rate would be based on the settlement date of the resulting account receivable or account payable. 3. c For forecasted sales on credit, the amount of cost or income ascribed to each forecasted period is reclassified from other comprehensive income to earnings on the date of the sale. For forecasted purchases on credit, the amount of cost or income ascribed to each forecasted period is reclassified from other comprehensive income to earnings in the same period or periods during which the asset acquired affects earnings. The reclassification from other comprehensive income to earnings of the amount of cost or income ascribed to each forecasted period is based on the guidance in paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . 4. d The income or cost ascribed to each period encompassed within the periods of the recognized foreign-currency-denominated receivable or payable is reclassified from other comprehensive income to earnings at the end of each reporting period. Example 18 (see paragraph [815-30-55-106](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-106)) illustrates such a transaction. ##### [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:384ce33dc7e086437f1f281148cd110f1264a5a724033f00607c3a646068e855 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses the following three methods of assessing effectiveness of certain cash flow hedges when hedge effectiveness is assessed on a quantitative basis in accordance with paragraphs [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) and [815-20-35-2 through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2): 1. a Change-in-variable-cash-flows method 2. b Hypothetical-derivative method 3. c Change-in-fair-value method. ##### [815-30-35-11](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:a9c857c8b6c5e5466945438581feb6d81178e8d307de807ffc30321e233d4f70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Those three methods relate to assessing the effectiveness of a cash flow hedge that involves any of the following: 1. a A receive-variable, pay-fixed interest rate swap designated as a hedge of the variable interest payments on an existing floating-rate liability 2. b A receive-fixed, pay-variable interest rate swap designated as a hedge of the variable interest receipts on an existing variable-rate asset 3. c Cash flow hedges of the variability of future interest payments on interest-bearing assets to be acquired or interest-bearing liabilities to be incurred (such as the rollover of an entity's short-term debt as described in Example 9 \[see paragraph [815-30-55-52](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-52)\]). ##### [815-30-35-12](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:52fba610958851273f3bc4376488a21d379f0898c6dceae6b198f66b3746dce4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedging relationships covered by this guidance encompass either of the following: 1. a Hedges of interest rate risk (pursuant to paragraph [815-20-25-15(j)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15)) that do not qualify for the shortcut method 2. b Hedges of the risk of overall changes in the hedged cash flows related to the asset or liability (pursuant to paragraph [815-20-25-15(j)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15)). ##### [815-30-35-13](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:d3620664d3808ae99d4addde0afcfd6b2c6df75689ae5b46e1dd22ac6c4220bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If, at the inception of the hedge, the fair value of the interest rate swap designated as the hedging instrument is zero or is somewhat near zero, any of the three methods in paragraph [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) may be applied to assess hedge effectiveness. ##### [815-30-35-14](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:99069aa0567406f8d33bbcda01e039331e8b1aae4238bc16ea7e22fb741b6de4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, if, at the inception of the hedge, the fair value of the interest rate swap is not somewhat near zero, the change-in-variable-cash-flows method shall not be applied to assess hedge effectiveness because that method does not require entities to consider the interest element of the change in fair value of a hedging instrument that incorporates a financing element; instead, either the hypothetical-derivative method or the change-in-fair-value method shall be applied. Those latter two methods require entities to consider the interest element of the change in fair value of a hedging instrument that incorporates a financing element that is not somewhat near zero, such as if the interest rate swap has been structured to be significantly in the money at the inception of the hedging relationship. ##### [815-30-35-15](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:040aeea1cda1389fbee4f176c955f2b1f854cb2af3007877da1362cf34f389fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under all three methods, an entity shall consider the risk of default by counterparties that are obligors with respect to the hedging instrument (the interest rate swap) or hedged transaction, pursuant to the guidance in paragraphs [815-20-25-122](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-122) and [815-20-25-16(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16), respectively. An underlying assumption in this guidance is that the likelihood of the obligor not defaulting is assessed as being probable. ##### [815-30-35-15A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-15A) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:dfcdba5fb6dad71a3a2ba0b8092dfe2504bedcb9da8f359e4152200e0f09cc28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When assessing hedge effectiveness using any of the three methods specified in paragraph [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10), in addition to the guidance specific to each method, an entity also shall apply the general guidance in paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) on prospective considerations and retrospective evaluations of hedge effectiveness. ##### [815-30-35-16](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:3884be336421ae947174307b772845f0ab1bced77a3e2fac846b3aeebd01b748 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall assess hedge effectiveness under the change-in-variable-cash-flows method by comparing the following items: 1. a The variable leg of the interest rate swap 2. b The hedged variable-rate cash flows on the asset or liability. ##### [815-30-35-17](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:f9301b570692d399bc11ec502b66702d9b389f03fe700efc1caaaada5433c5ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As noted in paragraph [815-30-35-14](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-14), the change-in-variable-cash-flows method shall not be used in certain circumstances. ##### [815-30-35-18](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:7b2270fd48902a74d248ce8d1c1e55f4fb3c9c4d9df49101b28f1b86eb52e138 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The change-in-variable-cash-flows method is consistent with the cash flow hedge objective of effectively offsetting the changes in the hedged cash flows attributable to the hedged risk. The method is based on the premise that only the floating-rate component of the interest rate swap provides the cash flow hedge, and any change in the interest rate swap's fair value attributable to the fixed-rate leg is not relevant to the variability of the hedged interest payments (receipts) on the floating-rate liability (asset). ##### [815-30-35-19](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:5fe17649febfa0c867325a55657be15b1b4556e36915a6c9bfb7187bfe6c4add Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall assess hedge effectiveness under this method by comparing the following amounts: 1. a The present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate swap 2. b The present value of the cumulative change in the expected future interest cash flows on the variable-rate asset or liability. ##### [815-30-35-20](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:5292f67b3bcaf65be20d78bcdfb5b5a60d539eee452bfa92013c78536fceedc7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the focus of a cash flow hedge is on whether the hedging relationship achieves offsetting changes in cash flows, if the variability of the hedged cash flows of the variable-rate asset or liability is based solely on changes in a variable-rate index, the present value of the cumulative changes in expected future cash flows on both the variable-rate leg of the interest rate swap and the variable-rate asset or liability shall be calculated using the discount rates applicable to determining the fair value of the interest rate swap. ##### [815-30-35-21](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:5ffd6809abbf39bb0737e028a7794bdcfbb0a488a01b2a4894fc95d3e33449d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-22](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:69f96154f86c6e3d09a043069114b5e00f26aed183238d817f116259ce105e2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The change-in-variable-cash-flows method will result in a perfectly effective hedge if all of the following conditions are met: 1. a The variable-rate leg of the interest rate swap and the hedged variable cash flows of the asset or liability are based on the same interest rate index (for example, three-month [London Interbank Offered Rate (LIBOR) swap rate](https://asc.understandingaccounting.org/glossary/l/#london-interbank-offered-rate-swap-rate "The fixed rate on a single-currency, constant-notional interest rate swap that has its variable-rate leg referenced to the London Interbank Offered Rate (LIBOR) with no additional spread over LIBOR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equate to the present value of the variable cash flows. (P) December 16, 2018; (N) December 16, 2020815-20-65-4Glossary term superseded by Accounting Standards Update No. 2018-16.")). 2. b The interest rate reset dates applicable to the variable-rate leg of the interest rate swap and to the hedged variable cash flows of the asset or liability are the same. 3. c The hedging relationship does not contain any other basis differences (for example, if the variable leg of the interest rate swap contains a cap and the variable-rate asset or liability does not). 4. d The likelihood of the obligor not defaulting is assessed as being probable. ##### [815-30-35-23](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:2512b2efa768125a964705e3fc82e1ea7ccd4e23111a9060d14989f0eaecf96f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, a hedge would not be perfectly effective if any basis differences existed. For example, this would be expected to result from either of the following conditions, among others: 1. a A difference in the indexes used to determine cash flows on the variable leg of the interest rate swap (for example, the three-month U.S. Treasury rate) and the hedged variable cash flows of the asset or liability (for example, three-month LIBOR) 2. b A mismatch between the interest rate reset dates applicable to the variable leg of the interest rate swap and the hedged variable cash flows of the hedged asset or liability. ##### [815-30-35-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:87714afd2231e86e6e39741ab9414c407c86d52bfb467fd2f0d28fb5f6642ad8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 15 (see paragraph [815-30-55-91](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-91)) illustrates the application of the change-in-variable-cash-flows method. ##### [815-30-35-25](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:1221fcc783e8771f628a5f7f86692f43910f252719082a3edb6ef70b7e8b9ac7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall assess hedge effectiveness under the hypothetical-derivative method by comparing the following amounts: 1. a The change in fair value of the actual interest rate swap designated as the hedging instrument 2. b The change in fair value of a hypothetical interest rate swap having terms that identically match the critical terms of the floating-rate asset or liability, including all of the following: 1. 1 The same [notional amount](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts.") 2. 2 The same repricing dates 3. 3 The same index (that is, the index on which the hypothetical interest rate swap's variable rate is based matches the index on which the asset or liability's variable rate is based) 4. 4 Mirror image caps and floors 5. 5 A zero fair value at the inception of the hedging relationship. ##### [815-30-35-26](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:95908a2cad344c73af10876cdb8a1567a25846a8da8922fe021a827a6af1b67e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Essentially, the hypothetical derivative would need to satisfy all of the applicable conditions in paragraphs [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) and [815-20-25-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-106) necessary to qualify for use of the shortcut method except the criterion in paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104). Thus, the hypothetical interest rate swap would be expected to perfectly offset the hedged cash flows. Because the requirements of paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) were developed with an emphasis on fair value hedging relationships, they do not fit the more general principle that the hypothetical derivative in a cash flow hedging relationship should be expected to perfectly offset the hedged cash flows. ##### [815-30-35-27](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:8b1a89c01497c936cce423880fdedba37334da9b40df124b7047a0874effcf95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The change in the fair value of the perfect hypothetical interest rate swap can be regarded as a proxy for the present value of the cumulative change in expected future cash flows on the hedged transaction. ##### [815-30-35-28](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:dd981b9435977b3562129e6d3330d9ad83ec21f93b5e0b03f686834ac6b7422d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-29](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:82ea5e80a2f269ea5e78853bdbd6373770fc72d11e495b4a327883798274174c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The determination of the fair value of both the perfect hypothetical interest rate swap and the actual interest rate swap shall use discount rates based on the relevant interest rate swap curves. ##### [815-30-35-30](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:9d5574ed3b619ff574a4a521c2ba4df90e2d4215e2d6b9fc6dce45984f81f449 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-31](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:102fe0e766555907fadbef08517d658060897167fafb2fdf38d59e0a309095a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall assess hedge effectiveness under the change-in-fair-value method by comparing the following amounts: 1. a The present value of the cumulative change in expected variable future interest cash flows that are designated as the hedged transactions 2. b The cumulative change in the fair value of the interest rate swap designated as the hedging instrument. ##### [815-30-35-32](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:88d5c028df1a76608257da918ae9039eda9ab22f742777fe3cc957f2359886b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The discount rates applicable to determining the fair value of the interest rate swap designated as the hedging instrument shall also be applied to the computation of present values of the cumulative changes in the hedged cash flows. ##### [815-30-35-33](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:3079db86d0b8555bb5eebbe38cccb4ad9427f3927f3cb03d53b331e7e25ae2ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity concludes under paragraphs [815-20-25-129 through 25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) that the hedging relationship may not be considered to be perfectly effective, the entity shall assess hedge effectiveness by comparing the following amounts: 1. a The change in fair value of the actual hedging instrument 2. b The change in fair value of a perfectly effective hypothetical hedging instrument. That hypothetical hedging instrument shall have terms that meet the four conditions listed in paragraphs [815-20-25-129 through 25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129). ##### [815-30-35-34](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:6196a0e86c96685e0df85bd47cb49346b05143c5d58bfdae30fafec4821accbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The change in fair value of the hypothetical hedging instrument can be regarded as a proxy for the present value of the cumulative change in expected future cash flows on the hedged transaction(s). ##### [815-30-35-35](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:b4d83f8cbe5486a7c6e4870796524c9f22e10d12f7d91fdbc25cfcd437a25b5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-36](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:21420291002b668a13de13fc856b43b1a5edbfe35e5a55d4b07c168c6f3496eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-37](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:562814e1958c9b93d743bdda16b6a87b5cf2e44a4adce3cc6a9ef6bb15b81fd9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-35-37A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:055d560efc27257a6670915a373a81d9116419474d9e9db8fbdc0c0b2d9a5aa2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the designated hedged risk changes during the life of a hedging relationship, an entity may continue to apply hedge accounting if the hedging instrument is highly effective at achieving offsetting cash flows attributable to the revised hedged risk. The guidance in paragraph [815-20-55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-56) does not apply to changes in the hedged risk for a cash flow hedge of a forecasted transaction. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)
Editor's Note: The heading that precedes paragraph 815-30-35-37A will be amended upon transition as shown below, and the content of the paragraph will be superseded.
• > Change in the Contractually Specified Interest Rate for Forecasted Interest Payments on Choose-Your-Rate Debt
[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-30-35-37B](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:d0d91bc63351a4ca227e5183ecfedf52b96d4672f0ff29bf389be485c4078fc6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)For a cash flow hedge of forecasted interest payments on choose-your-rate debt: 1. a With respect to the forecasted issuance of a choose-your-rate debt instrument, an entity may choose to apply the guidance in paragraphs [815-30-35-37C through 35-37H](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37C) on a hedge-by-hedge basis if both of the following conditions are satisfied: 1. 1 The forecasted interest payments designated as being hedged relate to the forecasted issuance of a choose-your-rate debt instrument that will be classified as a liability. 2. 2 The entity designates the hedged risk as the variability in cash flows attributable to changes in a contractually specified interest rate in accordance with paragraph [815-20-25-19A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A). 2. b With respect to an existing choose-your-rate debt instrument or replacement debt, an entity may choose to apply the guidance in paragraphs [815-30-35-37I through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37I) on a hedge-by-hedge basis if both of the following conditions are satisfied: 1. 1 The forecasted interest payments designated as being hedged have begun to accrue and relate to an existing choose-your-rate debt or replacement debt (see paragraph [815-30-35-37K](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37K) for additional guidance on replacement debt) instrument classified as a liability. 2. 2 The entity designates the hedged risk as the variability in cash flows attributable to changes in a contractually specified interest rate. The guidance in paragraphs [815-30-35-37C through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37C) shall not be applied by analogy, including to hedges designated under the first-payments-received technique (Example 4, Case A \[paragraphs [815-20-55-91 through 55-96A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-91) \] illustrates this technique) or to hedges of a choose-your-rate debt instrument or group of choose-your-rate debt instruments classified as assets. ##### [815-30-35-37C](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:c2021c58ee9b7d9e986f36fc6a9b1db6fd7747b172631d8307f3c3da2ab0a248 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In a cash flow hedge of forecasted interest payments that meets the conditions described in paragraph [815-30-35-37B(a)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B), an entity shall designate the contractually specified interest rate (and interest rate tenor) as the entity’s best estimate of the interest rate index (and interest rate tenor) that it will initially select for the first interest period when the choose-your-rate debt instrument is issued. The currently designated best estimate of the interest rate index (and interest rate tenor) shall be considered the interest rate index (and interest rate tenor) upon which interest will accrue over the entire hedge period for purposes of assessing hedge effectiveness during the period before the debt is issued. The selection of an interest rate index (and interest rate tenor) in a subsequent period that alters the number and timing of the hedged forecasted interest payments within the hedge period shall not result in an automatic dedesignation of the hedging relationship. ##### [815-30-35-37D](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37D) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:00d1e3d371d02217e9964514a23fe3ad61dae9e40d22eb164c9ffb988aee8aea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)When designating the hedged risk in a cash flow hedge of forecasted interest payments that meets the conditions described in paragraph [815-30-35-37B(a)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B), an entity shall document the interest rate indexes (and interest rate tenors) that are included in choose-your-rate debt being offered in the market. If the entity determines that it is probable that it will issue choose-your-rate debt and initially select one of those documented interest rate indexes (and interest rate tenors) for the first interest period when the choose-your-rate debt instrument is issued, and if all of the other requirements of hedge accounting are met, hedge accounting may be applied. ##### [815-30-35-37E](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37E) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:27a2f73d989508319e7af157f4c15692612b9d7f748e8e77b72553794c530a35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)If, during the forecast period, the entity’s best estimate of the interest rate index (and interest rate tenor) that it will initially select for the first interest period when the choose-your-rate debt instrument is issued changes to another rate that was documented at hedge inception, the entity shall apply the guidance in paragraphs [815-30-35-37F through 35-37G](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37F) to determine whether hedge accounting can continue. If the entity determines that it is probable that the interest rate index (and interest rate tenor) that it will initially select for the first interest period when the choose-your-rate debt instrument is issued will not be a rate that was documented at hedge inception or if the entity determines that it is probable that it will not issue choose-your-rate debt, the entity shall immediately reclassify the gain or loss on the hedging instrument reported in accumulated other comprehensive income into earnings in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). The entity also shall consider whether it has demonstrated a pattern of determining that hedged forecasted transactions are probable of not occurring and the propriety of using hedge accounting in the future for similar forecasted transactions in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). ##### [815-30-35-37F](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37F) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:b0c7903ba8e42d06045d767264d5a6422597b49d182c3bcd50ce4f4684ea611c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)If the best estimate of the interest rate index (and interest rate tenor) that the entity will select when the choose-your-rate debt instrument is issued changes to another rate that was documented in accordance with paragraph [815-30-35-37D](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37D) during the forecast period, the entity shall perform a final retrospective assessment of hedge effectiveness on the basis of changes in cash flows attributable to the previous best estimate of the interest rate. If the entity concludes on the basis of that retrospective assessment that the hedging relationship was not highly effective in having achieved offsetting cash flows, hedge accounting may not be applied during that period (that is, the overall change in the fair value of the hedging instrument for that period shall be recognized in earnings). However, the hedging relationship may continue if there is an expectation that the relationship will be highly effective in achieving offsetting cash flows in future periods and all other hedge accounting requirements are met. In that circumstance, the entity shall begin prospectively assessing hedge effectiveness on the basis of changes in cash flows attributable to the new best estimate of the interest rate in the period in which the best estimate of the interest rate changes. ##### [815-30-35-37G](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37G) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:25935912160af478a233cfef34345217b4a2188dc9be94affeb361d808fecac1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In performing a prospective assessment with the new best estimate of the interest rate index (and interest rate tenor), the entity shall create the terms of the instrument used to estimate changes in the cash flows attributable to the new best estimate of the interest rate (under the originally designated method, for example, the hypothetical derivative method or another acceptable method in Subtopic 815-30) on the basis of market data as of the inception of the hedging relationship as if the new best estimate of the interest rate had been designated for the entire hedge period. If the best estimate of the interest rate does not change again, all subsequent retrospective and prospective assessments of hedge effectiveness shall be performed using the currently designated best estimate of the interest rate. With respect to the timing, an entity shall perform its assessments of effectiveness in a manner consistent with paragraph [815-20-25-3(b)(2)(iv)(02)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-30-35-37H](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37H) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:b426d2815f13efbfae25b67b97e7512011191b0ac8e56e5168ddf3034e91ae59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)After the choose-your-rate debt instrument is issued and the entity chooses the first interest rate index (and interest rate tenor) upon which interest will accrue, the entity shall no longer apply the guidance in paragraphs [815-30-35-37C through 35-37G](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37C) . Instead, if the entity continues to apply hedge accounting, it shall apply the guidance on existing choose-your-rate debt and related replacement debt (if applicable) in accordance with paragraphs [815-30-35-37I through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37I) and update its hedge documentation without dedesignating the hedging relationship. Example 28 (paragraph [815-30-55-171](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-171)) illustrates how an entity should transition from the guidance on the forecasted issuance of choose-your-rate debt to the guidance on choose-your-rate debt and related replacement debt. ##### [815-30-35-37I](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37I) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:b94a296ba49b7c03b3fff8e6089b83ebe596dcf2cf289e99291f25851d5e965d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In a cash flow hedge of forecasted interest payments that meets the conditions in paragraph [815-30-35-37B(b)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B), an entity shall designate the contractually specified interest rate (and interest rate tenor) as the then-selected interest rate index (and interest rate tenor). The currently designated interest rate index (and interest rate tenor) shall be considered the interest rate index (and interest rate tenor) upon which interest will accrue over the entire hedge period for purposes of assessing hedge effectiveness. The selection of an interest rate index (and interest rate tenor) in a subsequent period that alters the number and timing of the hedged forecasted interest payments within the hedge period shall not result in an automatic dedesignation of the hedging relationship as long as the selected interest rate index (and interest rate tenor) is one of the options included in the original existing choose-your-rate debt instrument as documented in accordance with paragraph [815-30-35-37J](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37J). ##### [815-30-35-37J](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37J) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:fddf218f2edeee062483dfed638ca8004b91de65f6c3b0749315afc191f24216 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)When designating the hedged risk in a cash flow hedge of forecasted interest payments that meets the conditions described in paragraph [815-30-35-37B(b)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B), an entity shall document the interest rate indexes (and interest rate tenors) that are included in the existing choose-your-rate debt instrument. If the entity determines that it is probable that the forecasted interest payments related to the existing choose-your-rate debt instrument or replacement debt will occur at one of the documented interest rate indexes (and interest rate tenors) during the hedge period and all of the other requirements of hedge accounting are met, hedge accounting may be applied. ##### [815-30-35-37K](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37K) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:ce8556eea47f9fc279da687b83f11d1b7fa8e9d68b227838fe294b11fb64041d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An entity may designate the forecasted interest payments in a manner that includes debt that is expected to replace existing choose-your-rate debt. If the contractually specified interest rate at which interest is accruing on the replacement debt matches one of the interest rate index (and interest rate tenor) options included in the original choose-your-rate debt instrument that was outstanding when the first hedged interest payment began to accrue, the forecasted interest payments on the replacement debt shall be considered the hedged forecasted transactions without dedesignating the hedging relationship. If it becomes probable that the interest rate index (and interest rate tenor) at which interest will accrue on the replacement debt will not match one of the interest rate index (and interest rate tenor) options included in the original choose-your-rate debt instrument that was outstanding when the hedging relationship was initially designated, or that the replacement debt will be fixed-rate debt, the entity shall discontinue the application of hedge accounting and immediately reclassify the gain or loss on the hedging instrument recognized in accumulated other comprehensive income into earnings in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). The entity also shall consider whether it has demonstrated a pattern of determining that hedged forecasted transactions are probable of not occurring and the propriety of using hedge accounting in the future for similar forecasted transactions in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). ##### [815-30-35-37L](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37L) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:709231dc0702a4408f87b0c39b1b8894dd86cd6e531b161e60210541a85f3014 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)If the contractually specified interest rate in the hedging relationship is changed in accordance with paragraph [815-30-35-37I](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37I), the entity shall perform a final retrospective assessment of hedge effectiveness that is based on changes in cash flows attributable to the previously selected contractually specified interest rate for the last period in which interest was accruing at that interest rate. If the entity concludes on the basis of that retrospective assessment that the hedging relationship was not highly effective in having achieved offsetting cash flows, hedge accounting may not be applied during that period (that is, the change in the fair value of the hedging instrument for that period is recognized in earnings). However, the hedging relationship may continue if there is an expectation that the relationship will be highly effective in achieving offsetting cash flows in future periods and all other hedge accounting requirements are met. The entity shall begin prospectively assessing hedge effectiveness on the basis of changes in cash flows attributable to the newly selected contractually specified interest rate in the period in which interest begins accruing at that newly selected interest rate. ##### [815-30-35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37M) Pending content: yes Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:4c234b3274af5dc51b7f1c9857f8836bf2f325ac07830efca3747db3d6a592de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In performing a prospective assessment with the newly selected contractually specified interest rate, the entity shall create the terms of the instrument used to estimate changes in the cash flows attributable to the newly selected contractually specified interest rate (under the originally designated method, for example, the hypothetical derivative method or another acceptable method in Subtopic 815-30) on the basis of market data as of the inception of the hedging relationship as if the newly selected contractually specified interest rate had been designated for the entire hedge period. All subsequent retrospective and prospective assessments of hedge effectiveness shall be performed using the currently designated interest rate. With respect to the timing, an entity shall perform its assessments of effectiveness in a manner consistent with paragraph [815-20-25-3(b)(2)(iv)(02)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). #### Reclassifications from Accumulated Other Comprehensive Income into Earnings ##### [815-30-35-38](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:302bb7868603d11554512011ac75d2810980ad387bdf6e34627b63983ede9838 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Amounts in accumulated other comprehensive income that are included in the assessment of effectiveness shall be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings (for example, when a forecasted sale actually occurs) and shall be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A). If an entity excludes a component of a hedging instrument from the assessment of effectiveness, an entity shall apply the guidance in paragraphs [815-20-25-83A through 25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) . ##### [815-30-35-39](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:40ec2592bc841893a5bcda808a03582169fde4b82401b24b252cd3dfdbc326f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gains and losses in accumulated other comprehensive income that are included in the assessment of effectiveness shall be reclassified into earnings in the same period or periods during which the asset acquired or liability incurred affects earnings (such as in the periods that depreciation expense, interest expense, or cost of sales is recognized). ##### [815-30-35-40](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:3449b94bdc27483ae3b2acf92d3baf28912917a4ccae9c386bdfccd5cf9cbc45 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, if an entity expects at any time that continued reporting of a loss in accumulated other comprehensive income would lead to recognizing a net loss on the combination of the hedging instrument and the hedged transaction (and related asset acquired or liability incurred) in one or more future periods, a loss shall be reclassified immediately into earnings for the amount that is not expected to be recovered. ##### [815-30-35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:468be6804e6716389ca117458089b7a31554826f24b6c3eea883a59d810de071 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, a loss shall be reported in earnings for a derivative instrument that is designated as hedging the forecasted purchase of inventory to the extent that the cost basis of the inventory plus the related amount reported in accumulated other comprehensive income exceeds the amount expected to be recovered through sales of that inventory. (Impairment guidance is provided in paragraphs [815-30-35-42 through 35-43](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-42) .) ##### [815-30-35-41A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-41A) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:216dec451be7d9e241f9caa5592871f5ce4624917b28e5e231fff90dd4bf1918 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a hedging derivative with periodic cash settlements and a non-zero fair value at hedge inception as the hedging instrument in a qualifying cash flow hedging relationship. In this situation, amounts related to the initial fair value that are recorded in other comprehensive income during the hedging relationship shall be reclassified from accumulated other comprehensive income to earnings on a systematic and rational basis over the periods during which the hedged forecasted transactions affect earnings. Amounts reclassified to earnings shall be presented in the same income statement line item as the earnings effect of the hedged item. This guidance applies to both option-based and non-option-based derivatives designated as hedging instruments in a cash flow hedge. ##### [815-30-35-41B](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-41B) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:e7152f3246122afd3e71184d45577756cc30de9062c074f1112befec57c1a748 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph illustrates a method of reclassifying amounts from accumulated other comprehensive income to earnings when an option-based derivative is designated as a hedging instrument and the assessment of effectiveness is based on total changes in the derivative's cash flows. Those amounts include changes in fair value related to the derivative's initial intrinsic value in accordance with paragraph [815-30-35-41A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-41A). For example, the fair value of a single cap at the inception of a hedging relationship of interest rate risk on variable-rate debt with quarterly interest payments over the next two years should be allocated to the respective caplets within the single cap on a fair value basis at the inception of the hedging relationship. The change in each respective allocated fair value amount should be reclassified out of accumulated other comprehensive income into earnings when each of the hedged [forecasted transactions](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") (the eight interest payments) affects earnings. Because the amount in accumulated other comprehensive income is a net amount composed of both derivative instrument gains and derivative instrument losses, the change in the respective allocated fair value amount for an individual caplet that is reclassified out of accumulated other comprehensive income into earnings may possibly be greater than the net amount in accumulated other comprehensive income. ##### [815-30-35-41C](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-41C) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:35cfb21d217ae113fc388cc025cdf3b88fedfdecc2933506feb7271732cedd11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance has no effect on the accounting for fair value hedging relationships. In addition, in determining the accounting for seemingly similar cash flow hedging relationships, it would be inappropriate to analogize to this guidance. ##### [815-30-35-42](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:eb942126889ad69706fd5f963cd9a2dbcb03fb838b58cbe261063f222f3e1e04 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Existing requirements in generally accepted accounting principles (GAAP) for assessing asset impairment or credit losses or recognizing an increased obligation apply to an asset or liability that gives rise to variable cash flows (such as a variable-rate [financial instrument](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.")) for which the variable cash flows (the forecasted transactions) have been designated as being hedged and accounted for pursuant to paragraphs [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) and [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . Those impairment or credit loss requirements shall be applied each period after hedge accounting has been applied for the period, pursuant to those paragraphs. The fair value or expected cash flows of a hedging instrument shall not be considered in applying those requirements. The gain or loss on the hedging instrument in accumulated other comprehensive income shall, however, be accounted for as discussed in paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . ##### [815-30-35-43](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:3387c51bd36e5d852a907e5fbc13ae80cb7e8137ef8ecb924fc4ef7381318049 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If, under existing requirements in GAAP, an asset impairment loss or writeoff due to credit losses is recognized on an asset or an additional obligation is recognized on a liability to which a hedged forecasted transaction relates, any offsetting or corresponding net gain related to that transaction in accumulated other comprehensive income shall be reclassified immediately into earnings. Similarly, if a recovery is recognized on the asset or liability to which the forecasted transaction relates, any offsetting net loss that has been accumulated in other comprehensive income shall be reclassified immediately into earnings. ##### [815-30-35-44](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:ee97282d99ecbf86c85884437bf9c6d2704ca20e584e52601b425a8f1781a0a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the reclassification to earnings of the amount in accumulated comprehensive income resulting from a cash flow hedge of debt is required under this Subsection when that debt is extinguished, the amount reclassified from accumulated comprehensive income to earnings shall be excluded from extinguishment gain or loss. ##### [815-30-35-45](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:24ef836ea86ac1b07577a399820e1df0d28a18b14c375d02645aa08ec383046c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the variable-rate interest on a specific borrowing is associated with an asset under construction and capitalized as a cost of that asset, the amounts in accumulated other comprehensive income related to a cash flow hedge of the variability of that interest shall be reclassified into earnings over the depreciable life of the constructed asset, because that depreciable life coincides with the amortization period for the capitalized interest cost on the debt. #### Hedging Relationship's Timing Involves Uncertainty within a Range ##### [815-30-35-46](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:37c9cf60d8e3bf6c087067f5f79d9f9c024c1c917bd7d6d42304efc8bebbdd7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For forecasted transactions whose timing involves some uncertainty within a range, paragraph [815-20-25-16(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16) states that, as long as it remains probable that the forecasted transaction will occur by the end of the originally specified time period, cash flow hedge accounting for that hedging relationship shall continue. ##### [815-30-35-47](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:51.899Z to 2026-09-10T01:37:51.899Z Record version: sha256:8df7eeeb9b9b80be49cb740f2d168e27d0b6e03e133707e906159b7e38ff76ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:039b5efa84d01c424fd62f742ba8dad32f82ea5dd92846c2f2cb29ace9037056 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/815/30/#40-derecognition) SEC content: no #### Discontinuing Hedge Accounting ##### [815-30-40-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:653ed19a13d605607788e55bc42ab6e28aa3eded301ee7d008eac350b18e4a47 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall discontinue prospectively the accounting specified in paragraphs [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) and [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) for an existing hedge if any one of the following occurs: 1. a Any criterion in Section 815-30-25 is no longer met. 2. b The [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") expires or is sold, terminated, or exercised. 3. c The entity removes the designation of the [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk."). ##### [815-30-40-1A](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1A) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:8b4a0980084dfc3c2172a0f390e95153fc017b1e051653148e44a344b884c514 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the purposes of applying the guidance in paragraph [815-30-40-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1), a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument. ##### [815-30-40-2](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:6c8e88291ae7057d6fc474fd809b4f4ae839e386808a156be4fd294a2bfda488 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the circumstances discussed in paragraph [815-30-40-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1), the net gain or loss shall remain in accumulated other comprehensive income and be reclassified into earnings as specified in paragraphs  [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . Example 16 (see paragraph [815-30-55-94](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-94)) illustrates the application of paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) if a hedging relationship is terminated. ##### [815-30-40-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:44b6b8605764c87975bcfd34ccb8d145b81fa52006f0e01e01521ac3dc7745db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Furthermore, the entity may elect to designate prospectively a new hedging relationship with a different hedging instrument or, in the circumstances described in paragraph [815-30-40-1(a)](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1) and [815-30-40-1(c)](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1), a different hedged [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") or a hedged item if the hedging relationship meets the applicable criteria for a cash flow hedge or a [fair value hedge](https://asc.understandingaccounting.org/glossary/f/#fair-value-hedge "A hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk."). ##### [815-30-40-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:c229d95cdda1414b3264a736e132d8f2e697c40df411ab22e34561a3175b972f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The net derivative instrument gain or loss related to a discontinued cash flow hedge shall continue to be reported in accumulated other comprehensive income unless it is probable that the [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") will not occur by the end of the originally specified time period (as documented at the inception of the hedging relationship) or within an additional two-month period of time thereafter, except as indicated in the following sentence. In rare cases, the existence of extenuating circumstances that are related to the nature of the forecasted transaction and are outside the control or influence of the reporting entity may cause the forecasted transaction to be probable of occurring on a date that is beyond the additional two-month period of time, in which case the net derivative instrument gain or loss related to the discontinued cash flow hedge shall continue to be reported in accumulated other comprehensive income until it is reclassified into earnings pursuant to paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . ##### [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:bae6d7ef6720e15301262c5e5ae0233d6a3e5c293078634aa611d908ad36a1bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If it is probable that the hedged forecasted transaction will not occur either by the end of the originally specified time period or within the additional two-month period of time and the hedged forecasted transaction also does not qualify for the exception described in the preceding paragraph, that derivative instrument gain or loss reported in accumulated other comprehensive income shall be reclassified into earnings immediately. A pattern of determining that hedged forecasted transactions are probable of not occurring would call into question both an entity's ability to accurately predict forecasted transactions and the propriety of using hedge accounting in the future for similar forecasted transactions. ##### [815-30-40-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:464e4fa47cfc19e2e9c20d0be6d36f53a5e76bbdb4437bdbd6b02c201f919d1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Derivative instrument gains and losses that had initially been reported in other comprehensive income as a result of a cash flow hedge and then reclassified to earnings (because the entity subsequently concluded that it was probable that the forecasted transaction would not occur within the originally specified time period or the additional period of time described in paragraph [815-30-40-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4)) shall not later be reclassified out of earnings and back into accumulated other comprehensive income due to a reassessment of probabilities. ##### [815-30-40-6A](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-6A) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:d830b4d4cc0292398856d550d3d598748cd461e4396f3ec85965fb154a31963e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When applying the guidance in paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A), if the hedged forecasted transaction is probable of not occurring, any amounts remaining in accumulated other comprehensive income related to amounts excluded from the assessment of effectiveness shall be recorded in earnings in the current period. For all other discontinued cash flow hedges, any amounts associated with the excluded component remaining in accumulated other comprehensive income shall be recorded in earnings when the hedged forecasted transaction affects earnings. #### Alterations or Terminations of Offsetting Third-Party Derivative Instruments ##### [815-30-40-7](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:54.373Z to 2026-09-10T01:37:54.373Z Record version: sha256:ae92bee364a7726813e76f5a23b81a5bbeffa590b699be69e86778bf2bbb3235 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-62](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) provides guidance on [internal derivatives](https://asc.understandingaccounting.org/glossary/i/#internal-derivative "A foreign currency derivative instrument that has been entered into with another member of a consolidated group (such as a treasury center).") as hedging instruments in cash flow hedges of foreign exchange risk. Paragraph [815-20-25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-63) states that, if an issuing affiliate alters or terminates any offsetting third-party derivative instrument (which should be rare), the hedging affiliate prospectively shall cease hedge accounting for the internal derivatives that are offset by that third-party derivative instrument. Source downloaded (UTC): 2026-09-10T01:37:56.551Z to 2026-09-10T01:37:56.551Z Record version: sha256:45fba36b63565319b6df105125527efa0787dbf92e484365bb8f94b87dc9320f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/815/30/#45-other-presentation-matters) SEC content: no ##### [815-30-45-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:56.551Z to 2026-09-10T01:37:56.551Z Record version: sha256:96f839ebc17424d4d86985be19e48ac922f795536e3f95158b4c9d6cba34c86e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-45-2](https://asc.understandingaccounting.org/asc/815/30/#815-30-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:56.551Z to 2026-09-10T01:37:56.551Z Record version: sha256:84b31e7630bef88c37af6c83429447c82d9df92be83c61eb582a70d0a115336a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-45-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:37:56.551Z to 2026-09-10T01:37:56.551Z Record version: sha256:b85ba85d20010486183dec007bbe9e9d9ffcc0c58ad5b2c647990e904df2c208 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:7d73a1fa95d05d0decda540ffda6fa1994dd72277a1e5d71be694299f4ad81e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/815/30/#50-disclosure) SEC content: no ##### [815-30-50-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:914e6e06ae17670241a480b0bdcd0843ccf40b37a6100423a7905e4dde184d2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 815-10-50 for overall guidance on disclosures. An entity's disclosures for every annual and interim reporting period for which a statement of financial position and a statement of financial performance is presented shall include all of the following for [derivative instruments](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") that have been designated and have qualified as cash flow hedging instruments and for the related hedged [transactions](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities."): 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 2. b A description of the transactions or other events that will result in the reclassification into earnings of gains and losses that are reported in accumulated other comprehensive income 3. c The estimated net amount of the existing gains or losses that are reported in accumulated other comprehensive income at the reporting date that is expected to be reclassified into earnings within the next 12 months 4. d The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for [forecasted transactions](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") excluding those forecasted transactions related to the payment of variable interest on existing [financial instruments](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.") 5. e [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-50-2](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-2) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:0ea7c7a56056b29b9f1ac100881081a291c8989262e0794df94e316dfe62c2e6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As part of the disclosures of accumulated other comprehensive income, pursuant to paragraphs [220-10-45-14 through 45-14A](https://asc.understandingaccounting.org/asc/220/10/#220-10-45-14), an entity shall separately disclose all of the following: 1. a The beginning and ending accumulated derivative instrument gain or loss 2. b The related net change associated with current period hedging transactions 3. c The net amount of any reclassification into earnings 4. d The difference between the change in fair value of an excluded component and the initial value of that excluded component recognized in earnings under a systematic and rational method in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [270-10-65-1](https://asc.understandingaccounting.org/asc/270/10/#270-10-65-1)As part of the disclosures of accumulated other comprehensive income, pursuant to paragraphs [220-10-45-14 through 45-14A](https://asc.understandingaccounting.org/asc/220/10/#220-10-45-14), an entity shall separately disclose all of the following in interim and annual reporting periods: 1. a The beginning and ending accumulated derivative instrument gain or loss 2. b The related net change associated with current period hedging transactions 3. c The net amount of any reclassification into earnings 4. d The difference between the change in fair value of an excluded component and the initial value of that excluded component recognized in earnings under a systematic and rational method in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). ##### [815-30-50-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:cb646e87eea1976ac20a0f08c2f3a62b6ab8dd9e9fc93c356280d1a8f9060471 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on qualitative disclosures, see paragraph [815-10-50-5](https://asc.understandingaccounting.org/asc/815/10/#815-10-50-5). #### Disclosed Amount to Be Reclassified into Earnings ##### [815-30-50-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:abee34c51a2714c1b1458957d40b9ff4c9ec02ea60def3d7fde608c2b78ed514 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount required to be disclosed under paragraph [815-30-50-1(c)](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-1) (the estimated net amount of the existing gains or losses that are reported in accumulated other comprehensive income at the reporting date that is expected to be reclassified into earnings within the next 12 months) could be greater than or less than the net amount reported in accumulated other comprehensive income. ##### [815-30-50-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:3420adc7566fce3bb827f44925ddd32f98874c8e97e6f9f1b77307a334d2362f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To measure the amount of other comprehensive income to be reclassified into earnings in the coming 12 months if multiple cash flow exposures are designated as the hedged items for a single derivative instrument, the total amount reported in other comprehensive income (as determined in accordance with paragraph [815-30-35-3(b)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3)) for the hedging relationship first shall be allocated to each of the forecasted transactions (hedged items) within the hedging relationship. ##### [815-30-50-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:00.587Z to 2026-09-10T01:38:00.587Z Record version: sha256:14211345d7e21936d64f032d57180d362e4948350f354c17cce6ca504a4904fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The allocation method used shallbe applied consistently. After the amount reported in other comprehensive income has been allocated to each of the forecasted transactions within the hedging relationship, the entity shall sum those estimated amounts to be reclassified into earnings in the coming 12 months. Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:54e232a1c1a1f5cb41c5a619b241b87554ee5d3c749ea827a2b2b8b80a72623c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/815/30/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [815-30-55-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:841d0e61bbe85871bd41f5d2f5e66c2e8027a852bc0b3407bdd34464fc71aa57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-30-50-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-50-5) provides guidance on measuring the amount of other comprehensive income to be reclassified into earnings in the coming 12 months if multiple cash flow exposures are designated as the hedged items for a single derivative instrument. If interest rate or commodity swaps are used for cash flow hedges, in effect a single derivative is being used to hedge multiple hedged [forecasted transactions](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") because a swap involves multiple cash flows (like a series of forward contracts). For instance, a five-year interest rate swap may be designated as the hedging instrument to hedge the variability in cash flows for each of the resets in a five-year variable-rate borrowing. The fair value of a swap may be the net of both positive discounted cash flows (that is, the right to receive future payments) and negative discounted cash flows (that is, the obligation to make future payments). This could happen, for example, if nearby forward rates were below the fixed rate on the swap and far-term forward rates were above the fixed rate on the swap, in which case an entity could have an expectation of having to make cash outflows on the swap for nearby exposures and to receive cash inflows on the swap for the far-term exposures. #### Illustrations ##### [815-30-55-1A](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-1A) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e10b51fb1c2188da7d66646bc4372a316c9751728a5a98d294ff897baf0068e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to assessing effectiveness for a [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") of a forecasted purchase of inventory with a forward contract in which the forward contract index differs from the index of the underlying hedged transaction. Assume that the entity elected to perform subsequent quarterly hedge effectiveness assessments on a quantitative basis and that all hedge documentation requirements were satisfied at inception. ##### [815-30-55-2](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-2) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:609622a0df4572f2805a5319bb38f3cb1fa357b6d2d5ce4ee4f8fcf8fa9061b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity G forecasts the purchase of 500,000 pounds of Brazilian coffee for U.S. dollars in 6 months. The agreement outlining purchase terms between Entity G and its supplier contains a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") referencing a Brazilian coffee index denominated in U.S. dollars. Entity G designates the variability in cash flows related to its forecasted purchase of Brazilian coffee attributable to changes in the contractually specified component (Brazilian coffee index) as the hedged risk. Rather than acquire a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") based on Brazilian coffee, Entity G enters into a 6-month forward contract to purchase 500,000 pounds of Colombian coffee for U.S. dollars and designates the forward contract as a hedging instrument in a cash flow hedge of the variability in cash flows attributable to changes in the contractually specified Brazilian coffee index component of its forecasted purchase of Brazilian coffee. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity G forecasts the purchase of 500,000 pounds of Brazilian coffee for U.S. dollars in 6 months. The agreement outlining purchase terms between Entity G and its supplier contains a pricing formula that explicitly references the Brazilian coffee index denominated in U.S. dollars. Thus, the purchase price will be based on that coffee index as of the delivery date (that is, in six months). Entity G designates the variability in cash flows related to its forecasted purchase of Brazilian coffee attributable to changes in the Brazilian coffee index as the hedged risk. Entity G determines that the Brazilian coffee index explicitly referenced in the agreement’s pricing formula is clearly and closely related to the forecasted purchase of 500,000 pounds of Brazilian coffee and therefore meets the conditions in paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). Rather than acquire a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") based on Brazilian coffee, Entity G enters into a 6-month forward contract to purchase 500,000 pounds of Colombian coffee for U.S. dollars and designates the forward contract as a hedging instrument in a cash flow hedge of the variability in cash flows attributable to changes in the explicitly referenced Brazilian coffee index component of its forecasted purchase of Brazilian coffee. ##### [815-30-55-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-3) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a15e394b4b74b6022a8f55fe4dcbbc102278b5c778910524205bb145e5bf919c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity G bases its assessment of hedge effectiveness on changes in forward prices, with the resulting gain or loss discounted to reflect the time value of money. Both at inception and on an ongoing basis, Entity G could assess the effectiveness of the hedge by comparing changes in the expected cash flows from the Colombian coffee forward contract with the expected net change in cash outflows attributable to changes in the contractually specified component for purchasing the Brazilian coffee for different market prices. (A simpler method that should produce the same results would consider the expected future correlation of the prices of Brazilian and Colombian coffee, based on the correlation of those prices over past six-month periods.) Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity G bases its assessment of hedge effectiveness on changes in forward prices, with the resulting gain or loss discounted to reflect the time value of money. Both at inception and on an ongoing basis, Entity G could assess the effectiveness of the hedge by comparing changes in the expected cash flows from the Colombian coffee forward contract with the expected net change in cash outflows attributable to changes in the price index explicitly referenced in the agreement for purchasing the Brazilian coffee for different market prices. (A simpler method that should produce the same results would consider the expected future correlation of the prices of Brazilian and Colombian coffee, based on the correlation of those prices over past six-month periods.) ##### [815-30-55-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-4) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:42dadd29de3bace6a2dd14402a4599ca062b662a31b13b59b2cb6317f92e1eea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing hedge effectiveness on an ongoing basis, Entity G also must consider the extent of offset between the change in expected cash flows on its Colombian coffee forward contract and the expected net change in expected cash flows for the forecasted purchase of Brazilian coffee attributable to changes in the contractually specified component. Both changes would be measured on a cumulative basis for actual changes in the forward price of the respective coffees during the hedge period. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In assessing hedge effectiveness on an ongoing basis, Entity G also must consider the extent of offset between the change in expected cash flows on its Colombian coffee forward contract and the expected net change in expected cash flows for the forecasted purchase of Brazilian coffee attributable to changes in the designated price component (Brazilian coffee index).Both changes would be measured on a cumulative basis for actual changes in the forward price of the respective coffees during the hedge period. ##### [815-30-55-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:df7cd2af71d0a4c889873f39221b7e6a735244e86dbb8f8cc50742fbc5f5128c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Topic 820 (including paragraph [820-10-55-13](https://asc.understandingaccounting.org/asc/820/10/#820-10-55-13)) for a discussion of expected cash flows. ##### [815-30-55-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a7d9a96e2fd640cc24c933b242fecaffff103c18d0d00a6570c7ebbd4f960c0c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the only difference between the forward contract and forecasted purchase relates to the type of coffee (Colombian versus Brazilian), Entity G could consider the changes in the cash flows on a forward contract for Brazilian coffee to be a measure of perfectly offsetting changes in cash flows for its forecasted purchase of Brazilian coffee. For example, for given changes in the U.S. dollar prices of six-month and three-month Brazilian and Colombian contracts, Entity G could compute the effect of a change in the price of coffee on the expected cash flows of its forward contract on Colombian coffee and of a forward contract for Brazilian coffee as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-39654663-1E52-45B4-9751-5A446C9D9D15-low.gif) Estimate of Change in Cash Flows Hedging Instrument: Forward Contract on Colombian Coffee Estimate of Forecasted Transaction: Forward Contract on Brazilian Coffee Forward price of Colombian and Brazilian coffee: At hedge inception—6-month price $2.54 $2.43 3 months later—3-month price 2.63 2.53 Cumulative change in price—gain $0.09 $0.10 "× 500,000 pounds of coffee" " × 500,000 " " × 500,000 " Estimate of change in cash flows " $45,000 " " $50,000 " ##### [815-30-55-7](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:fc2e09a6a2a9b44fe2d65101b4a70e4d7de970806fb1b054a84bceb59e1c38e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Topic 820 (including paragraph [820-10-55-13](https://asc.understandingaccounting.org/asc/820/10/#820-10-55-13)) for a discussion of expected cash flows. ##### [815-30-55-8](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:05be6c49b1fbd8c5c5ec9b1b0829de70cc97e04fd790200b57f3bd9978ffaea3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Using the amounts in paragraph [815-30-55-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-6), Entity G could evaluate effectiveness 3 months into the hedge on its first subsequent quarterly effectiveness assessment testing date by comparing the $45,000 change on its Colombian coffee contract with what would have been a perfectly offsetting change in cash flow for its forecasted purchase—the $50,000 change on an otherwise identical forward contract for Brazilian coffee. Entity G concludes that the hedging relationship would be highly effective, and it would record the $45,000 change in the fair value of the forward contract on Colombian coffee in other comprehensive income. 1. a [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-9](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:08ebd3ade4cbc5a4d82e1d74628be6d69b405e7a48fc4b42c7b75d48fef5db2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to assessing effectiveness for a cash flow hedge with a basis swap. Assume that the entity elects to perform subsequent hedge effectiveness assessments on a quantitative basis and that all hedge documentation requirements were satisfied at inception. ##### [815-30-55-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:7c4752b783efa44ef47e3fbec15a34626990ba9b0c87807413cdbfaa506d31f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity H has a 5-year, $100,000 variable-rate asset and a 7-year, $150,000 variable-rate liability. The interest on the asset is payable by the counterparty at the end of each month based on the prime rate as of the first of the month. The interest on the liability is payable by Entity H at the end of each month based on [London Interbank Offered Rate (LIBOR)](https://asc.understandingaccounting.org/glossary/l/#london-interbank-offered-rate-swap-rate "The fixed rate on a single-currency, constant-notional interest rate swap that has its variable-rate leg referenced to the London Interbank Offered Rate (LIBOR) with no additional spread over LIBOR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equate to the present value of the variable cash flows. (P) December 16, 2018; (N) December 16, 2020815-20-65-4Glossary term superseded by Accounting Standards Update No. 2018-16.") as of the tenth day of the month (the liability's anniversary date). The reference rates for both the asset and the liability are contractually specified. Entity H enters into a 5-year interest rate swap to pay interest at the prime rate and receive interest at LIBOR at the end of each month based on a [notional amount](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts.") of $100,000. Both rates are determined as of the first of the month. Entity H designates the interest rate swap as a hedge of 5 years of interest receipts on the $100,000 variable-rate asset and the first 5 years of interest payments on $100,000 of the variable-rate liability. The hedged risk is the variability in the contractually specified interest payments received on the asset and paid on the liability. Assume the likelihood of credit default and the likelihood of principal prepayments each is remote. ##### [815-30-55-11](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:14600801a58c6649e69a70768f8f6f743a43ad611f11ce1f149586f372348d76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity H may not automatically assume that the hedge always will be highly effective at achieving offsetting changes in cash flows because the reset date on the receive leg of the interest rate swap differs from the reset date on the corresponding variable-rate liability. Both at hedge inception and on an ongoing basis, Entity H's assessment of expected effectiveness could be based on the extent to which changes in LIBOR have occurred during comparable 10-day periods in the past. Entity H's ongoing assessment of effectiveness would be on a cumulative basis and would incorporate the actual interest rate changes to date. There will be no perfect offset to the extent that the cumulative change in cash flows on the prime leg of the interest rate swap did not offset the cumulative change in expected cash flows on the asset, and the cumulative change in cash flows on the LIBOR leg of the interest rate swap did not offset the change in expected cash flows on the hedged portion of the liability. The terms of the interest rate swap, the asset, and the portion of the liability that is hedged are the same, with the exception of the reset dates on the liability and the receive leg of the interest rate swap. Thus, there will be no perfect offset in the hedging relationship if LIBOR has changed between the first of the month (the reset date for the interest rate swap) and the tenth of the month (the reset date for the liability). ##### [815-30-55-12](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:740f50c6bd13aa76803fba1963215e03613e901fd2468517756c890641df1d76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Topic 820 (including paragraph [820-10-55-13](https://asc.understandingaccounting.org/asc/820/10/#820-10-55-13)) for a discussion of expected cash flows. ##### [815-30-55-13](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c146c49a062006bd9a6566257f2687be7ab8be2497b279a75284c9a10a3ebe54 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to assessing effectiveness for a cash flow hedge of a forecasted sale with a forward contract. Assume that the hedge satisfied all of the criteria for hedge accounting at inception. ##### [815-30-55-14](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:5b2d8493d427eac486efe7661a501771eedbf0e00c956c5153df671c24715ebd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity I, a U.S. dollar (USD) functional currency entity, forecasts the sale of 10,000 units in Euros (EUR) of its principal product in 6 months to French customers for EUR 500,000. Entity I wants to hedge the cash flow exposure of the EUR sale related to changes in the USD-EUR exchange rate. It enters into a 6-month forward contract to exchange the EUR 500,000 it expects to receive in the forecasted sale for the USD equivalent specified in the forward contract and designates the forward contract as a cash flow hedge of the forecasted sale. ##### [815-30-55-15](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:219d9db261140b23cbe89ea9d0ba4b28c5dc4c1d5618a558fdb06844a6f0f9a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity I chooses to assess hedge effectiveness at inception and during the term of the hedge based on the following amounts: 1. a Changes in the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the forward contract attributable to changes in the USD-EUR [spot rate](https://asc.understandingaccounting.org/glossary/s/#spot-rate "The exchange rate for immediate delivery of currencies exchanged.") 2. b Changes in the present value of the current USD equivalent of the forecasted receipt of EUR 500,000. ##### [815-30-55-16](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:0991db90a3bac0ee80805fbb0ce871d80c2f8b058301ccdcbcd25b206a26f535 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the critical terms of the forward contract and the [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") are the same, presumably there would be perfect offset unless there is a reduction in the expected sales proceeds from the forecasted sales. Because Entity I is assessing effectiveness based on spot rates, it would exclude the change in the fair value of the forward contract attributable to changes in the difference between the forward rate and spot rate from the assessment of effectiveness and account for it through an amortization approach in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) or a mark-to-market approach in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). Under either approach, the portion of the excluded component recognized in earnings should be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A). ##### [815-30-55-17](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:cc80646f17cbdb8e8ae67032ab5e9e0271fe4583ce1b605376d747cb70d9eb32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to an attempted hedge of a forecasted sale with a written call option. ##### [815-30-55-18](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:f94247b6f1537fe204333aee12d0403ccde3ac985310c57c58a6caf91cc6bebd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J forecasts the sale in 9 months of 100 units of product with a current market price of $95 per unit. Entity J's objective is to sell the upside potential associated with the forecasted sale by writing a call option for a premium. Entity J plans to use the premium from the call option as an offset to decreases in future cash inflows from the forecasted sale that will occur if the market price of the product decreases below $95. Accordingly, Entity J sells an at-the-money call option on 100 units of product with a strike price of $95 for a premium. The premium represents only the time value of the option. The option is exercisable at any time within nine months. ##### [815-30-55-19](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:021e0115de9561ea42e87685a76d85b09cabc0c5a917b122aed654a5d4e7fbeb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J's objective of using the premium from the written call option as an offset to any decrease in future cash inflows does not meet the notion of effectiveness in this Subtopic. Future changes in the market price of the entity's product will not affect the premium that Entity J received, which is all related to time value in this example and thus is the maximum amount by which Entity J can benefit. That is, Entity J cannot expect the cash flows on the option to increase so that, at different price levels, a decrease in cash flows from the forecasted sale would be offset by an increase in cash flows on the option. ##### [815-30-55-20](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-20) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:7adadcc2db8b047784182da8f19cc70345aa0aeb5dffecd8dc0379f1dc7fbacf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) and this Subtopic to the accounting for a cash flow hedge of a forecasted sale of a commodity. The terms of the hedging derivative have been negotiated to match the terms of the forecasted transaction. Assume that there is no time value in the derivative instrument. Entity ABC has chosen to hedge the variability of the cash flows from the forecasted sale of the commodity instead of the changes in its fair value. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)This Example illustrates the application of the guidance in paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) and this Subtopic to the accounting for a cash flow hedge of a forecasted sale of a commodity. The terms of the hedging derivative have been negotiated to match the terms of the designated price component of the forecasted transaction. Entity ABC has chosen to hedge the variability of the cash flows from the forecasted sale of the commodity instead of the changes in its fair value. For simplicity, the time value in the derivative instrument and commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. ##### [815-30-55-21](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-21) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:3eb70027b4a2d9ecb6823ceb23dfd2fe1e2ee8038351a91e43d56cc9a5506dea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because there is no [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09."), Entity ABC hedges the risk of changes in its cash flows relating to changes in the sales price of a forecasted sale of 100,000 bushels of Commodity A by entering into a derivative instrument, Derivative Z. Entity ABC expects to sell the 100,000 bushels of Commodity A on the last day of Period 1. On the first day of Period 1, Entity ABC enters into Derivative Z and designates it as a cash flow hedge of the forecasted sale. Entity ABC neither pays nor receives a premium on Derivative Z (that is, its fair value is zero). Entity ABC expects that there will be perfect offset between the hedging instrument and the hedged item because all of the following conditions exist: 1. a The notional amount of Derivative Z is 100,000 bushels and the forecasted sale is for 100,000 bushels. 2. b The [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") of Derivative Z is the price of the same variety and grade of Commodity A that Entity ABC expects to sell (assuming delivery to Entity ABC's selling point). 3. c The settlement date of Derivative Z is the last day of Period 1 and the forecasted sale is expected to occur on the last day of Period 1. The entity need not perform an initial quantitative assessment of hedge effectiveness in accordance with paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) because the conditions in paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) are met. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity ABC seeks to hedge the variability of cash flows from the forecasted sale of Commodity A in the spot market at a future date. Accordingly, Entity ABC hedges the risk of changes in its cash flows relating to changes in the sales price of a forecasted sale of 100,000 bushels of Commodity A in the spot market by entering into a derivative instrument, Derivative DEF. Entity ABC expects to sell the 100,000 bushels of Commodity A on the last day of Period 1. On the first day of Period 1, Entity ABC enters into Derivative DEF and designates it as a cash flow hedge of changes in the DEF index component of the forecasted sales price. Entity ABC determines that the DEF index is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to Commodity A in the pertinent spot market and concludes that the conditions in paragraph [815-20-25-22C(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) are met. Entity ABC expects that there will be perfect offset between the hedging instrument and the hedged item because all of the following conditions exist: 1. a The notional amount of Derivative DEF is 100,000 bushels and the forecasted sale is for 100,000 bushels. 2. b The [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") of Derivative DEF is the same as the designated price component of Commodity A that Entity ABC expects to sell. 3. c The settlement date of Derivative DEF is the last day of Period 1 and the forecasted sale is expected to occur on the last day of Period 1. 4. d Entity ABC neither pays nor receives a premium on Derivative DEF (that is, its fair value is zero). The entity need not perform an initial quantitative assessment of hedge effectiveness in accordance with paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) because the conditions in paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) are met. ##### [815-30-55-22](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-22) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e02d5786cfde4412df26a6dc432b9a4e1dbeda87a28cbf1a68286ca5cbc6805a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At inception of the hedge, the expected sales price of 100,000 bushels of Commodity A is $1,100,000. On the last day of Period 1, the fair value of Derivative Z has increased by $25,000, and the expected sales price of 100,000 bushels of Commodity A has decreased by $25,000. Both the sale of 100,000 bushels of Commodity A and the settlement of Derivative Z occur on the last day of Period 1. The following table illustrates the accounting, including the net effect on earnings and other comprehensive income, for the situation described. - ![](https://asc.understandingaccounting.org/asc-img/GUID-8D0B484A-3F31-4A60-8F99-0A2B79626AE9-low.gif) Debit (Credit) Cash Derivative Other Comprehensive Income Earnings(a) Recognize change in fair value of derivative " $25,000 " " $(25,000)" Recognize revenue from sale " $1,075,000 " " $(1,075,000)" Recognize settlement of derivative "25,000 " " (25,000)" Reclassify change in fair value of derivative to earnings "25,000" " (25,000)" Total " $1,100,000 " $- $- " $(1,100,000)" (a) The change in fair value of the hedging derivative is presented in the same income statement line item as the earnings effect of the hedged item. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)At inception of the hedge, the expected sales price of 100,000 bushels of Commodity A is $1,100,000. On the last day of Period 1, the fair value of Derivative DEF has increased by $25,000, and the expected sales price of 100,000 bushels of Commodity A has decreased by $25,000 because of changes attributable to the DEF index. Both the sale of 100,000 bushels of Commodity A and the settlement of Derivative DEF occur on the last day of Period 1. The following table illustrates the accounting, including the net effect on earnings and other comprehensive income, for the situation described. - ![](https://asc.understandingaccounting.org/asc-img/GUID-8D0B484A-3F31-4A60-8F99-0A2B79626AE9-low.gif) Debit (Credit) Cash Derivative Other Comprehensive Income Earnings(a) Recognize change in fair value of derivative " $25,000 " " $(25,000)" Recognize revenue from sale " $1,075,000 " " $(1,075,000)" Recognize settlement of derivative "25,000 " " (25,000)" Reclassify change in fair value of derivative to earnings "25,000" " (25,000)" Total " $1,100,000 " $- $- " $(1,100,000)" (a) The change in fair value of the hedging derivative is presented in the same income statement line item as the earnings effect of the hedged item. ##### [815-30-55-23](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-23) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:581df8f12f7c0bcc827a5a559f3dfadaab1cc7e33a1fac351cc97546315d3611 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the inception of the hedge, Entity ABC anticipated that it would receive $1,100,000 from the sale of 100,000 bushels of Commodity A. This Example illustrates that by hedging the risk of changes in its cash flows relating to the forecasted sale of 100,000 bushels of Commodity A, Entity ABC still received a total of $1,100,000 in cash flows even though the sales price of Commodity A declined during the period. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)At inception of the hedge, Entity ABC anticipated that it would receive $1,100,000 from the sale of 100,000 bushels of Commodity A. This Example illustrates that by hedging the risk of cash flow variability attributable to changes in the DEF index component of the forecasted sale of 100,000 bushels of Commodity A, Entity ABC still received a total of $1,100,000 in cash flows even though the sales price of Commodity A declined during the period. ##### [815-30-55-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:9075a79cbb93a48f17b197493c808eeeb4545f183fdd4fe9256d00f7234e4b7c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example demonstrates the mechanics of accounting for an interest rate swap used as a cash flow hedge of variable interest receipts in accordance with the guidance in Subtopic 815-20 and this Subtopic. It is not intended to demonstrate how to compute the fair value of an interest rate swap. As in Example 8 (see paragraph [815-25-55-40](https://asc.understandingaccounting.org/asc/815/25/#815-25-55-40)), the [zero-coupon method](https://asc.understandingaccounting.org/glossary/z/#zero-coupon-method "A swap valuation method that involves computing and summing the present value of each future net settlement that would be required by the contract terms if future spot interest rates match the forward rates implied by the current yield curve. The discount rates used are the spot interest rates implied by the current yield curve for hypothetical zero coupon bonds due on the date of each future net settlement on the swap.") is used to determine the fair values. (Unlike in that Example, the yield curve in this Example is assumed to be upward sloping, that is, interest rates are higher for payments due further into the future.) In this Example, the term, notional amount, and repricing date of the interest rate swap match the term, repricing date, and principal amount of the interest-bearing asset on which the hedged interest receipts are due. The swap terms are at the market (as described in paragraphs [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), [815-20-25-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-106), and [815-20-25-109](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-109)), so it has a zero value at inception. Thus, the reporting entity is permitted to assume that the hedging relationship will achieve perfect offset in the variability of cash flows of the hedged item. ##### [815-30-55-25](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:33527bd463906471953be805061bae895d571861c30e2d57de56b6bf951792f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As discussed beginning in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102), a shortcut method can be used to produce the same reporting results as the method illustrated in this Example. This shortcut is appropriate only if the assumption of perfect offset applies for an interest rate swap used as a cash flow hedge of interest receipts on a variable-rate asset (or interest payments on a variable-rate liability). The steps in the shortcut method are as follows: 1. a Determine the difference between the variable rate to be paid on the interest rate swap and the variable rate to be received on the bonds. 2. b Combine that difference with the fixed rate to be received on the interest rate swap. 3. c Compute and recognize interest income using that combined rate and the variable-rate asset's principal amount. (Amortization of any purchase premium or discount on the asset must also be considered, although that complication is not incorporated in this Example.) 4. d Determine the fair value of the interest rate swap. 5. e Adjust the carrying amount of the interest rate swap to its fair value and adjust other comprehensive income by an offsetting amount. A slightly different shortcut method for interest rate swaps used as [fair value hedges](https://asc.understandingaccounting.org/glossary/f/#fair-value-hedge "A hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk.") is illustrated in Example 8 (see paragraph [815-25-55-40](https://asc.understandingaccounting.org/asc/815/25/#815-25-55-40)). ##### [815-30-55-26](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:7ac4a63aeb03326b3a5110244c2bf0a692a7a50405eaa2b3b6dd54b940f71ca6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. ##### [815-30-55-27](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:0d396fa45120f5881595b0e2858d64f008878dc001ec74d604866e2ee1c1db0d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On July 1, 20X1, Entity XYZ invests $10,000,000 in variable-rate corporate bonds that pay interest quarterly at a rate equal to the 3-month USD LIBOR rate plus 2.25 percent. The $10,000,000 principal will be repaid on June 30, 20X3. ##### [815-30-55-28](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:6511d7b0b4035c32ff94f0906db550b9b69a02ca7eb6ad31a06bb2942d011c89 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Also on July 1, 20X1, Entity XYZ enters into a two-year receive-fixed, pay-variable interest rate swap and designates it as hedging instrument in a cash flow hedge of the variable-rate interest receipts on the corporate bonds. The risk designated as being hedged is the risk of variability in cash flows received attributable to changes in the contractually specified interest rate. The terms of the interest rate swap and the corporate bonds are shown in the following table. - ![](https://asc.understandingaccounting.org/asc-img/GUID-AD6DCA3D-5319-4D15-A368-5B48C2E3D437-low.gif) Interest Rate Swap Corporate Bonds Trade date and borrowing date(a) "July 1, 20X1" "July 1, 20X1" Termination date "June 30, 20X3" "June 30, 20X3" Notional amount "$10,000,000 " "$10,000,000 " Fixed interest rate 6.65% Not applicable Variable interest rate(b) 3-month USD LIBOR 3-month USD LIBOR + 2.25% Settlement dates and interest payment dates(a) End of each calendar quarter End of each calendar quarter Reset dates "End of each calendar quarter through March 31, 20X3" "End of each calendar quarter through March 31, 20X3" (a) These terms need not match for the assumption of perfect offset to be appropriate. (See paragraphs 815-20-25-102 through 25-110.) (b) "Only the interest rate basis (for example, LIBOR) must match. The spread over LIBOR does not invalidate the assumption of perfect offset. " ##### [815-30-55-29](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:63569d590b9e8ab508385563fd28018cffe332ade01b527e9c4bf1aceef7ea2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the conditions described in paragraphs [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) and [815-20-25-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-106) are met, Entity XYZ is permitted to assume that there is perfect offset in the hedging relationship and to recognize in other comprehensive income the entire change in the fair value of the interest rate swap. ##### [815-30-55-30](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:975b1fdb0ddda03a3e4ca19e4464d00c751c9c9613d8f8df5ef2cc33bdf68d59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The three-month USD LIBOR rates in effect at the inception of the hedging relationship and at each of the quarterly reset dates are assumed to be as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-D9AD7CD8-C507-4253-A9CA-D54CC0BF63E0-low.gif) Reset Date 3-Month LIBOR Rate 7/1/X1 5.56% 9/30/X1 5.63% 12/31/X1 5.56% 3/31/X2 5.47% 6/30/X2 6.75% 9/30/X2 6.86% 12/31/X2 6.97% 3/31/X3 6.57% ##### [815-30-55-31](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:16d494f54b5634bf7e67c7a1a02cb3dd59615c9039e87e2db2737a505b7df541 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity XYZ must reclassify to earnings the amount in accumulated other comprehensive income as each interest receipt affects earnings. In determining the amounts to reclassify each quarter, it is important to recognize that the interest rate swap does not hedge the bonds. Instead, it hedges the eight variable interest payments to be received. That is, each of the eight quarterly settlements on the swap is associated with an interest payment to be received on the bonds. Under the zero-coupon method discussed in paragraph [815-30-55-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-24), the present value of each quarterly settlement is computed separately. Because each payment occurs at a different point on the yield curve, a different interest rate must be used to determine its present value. As each individual interest receipt on the bonds is recognized in earnings, the fair value of the related quarterly settlement on the swap is reclassified to earnings. The fair values and changes in fair values of the interest rate swap and the effects on earnings and other comprehensive income for each quarter are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-D1F0C3E7-B85A-41FF-89BD-518A3A24B6D6-low.gif) Swap Debit (Credit) Other Comprehensive Income Debit (Credit) Earnings Debit (Credit) Cash Debit (Credit) "July 1, 20X1" $- Interest accrued - Payment (receipt) " (27,250)" " $27,250 " Effect of change in rates " 52,100 " " $(52,100)" Reclassification to earnings " 27,250 " " $(27,250)" "September 30, 20X1" " 24,850 " " (24,850)" " $(27,250)" " $27,250 " Interest accrued 330 (330) Payment (receipt) " (25,500)" " $25,500 " Effect of change in rates " 74,120 " " (74,120)" Reclassification to earnings " 25,500 " " $(25,500)" "December 31, 20X1" " 73,800 " " (73,800)" " $(25,500)" " $25,500 " Interest accrued " 1,210 " " (1,210)" Payment receipt " (27,250)" " $27,250 " Effect of change in rates " 38,150 " " (38,150)" Reclassification to earnings " 27,250 " " $(27,250)" "March 31, 20X2" " 85,910 " " (85,910)" " $(27,250)" " $27,250 " Interest accrued " 1,380 " " (1,380)" Payment (receipt) " (29,500)" " $29,500 " Effect of change in rates " (100,610)" " 100,610 " Reclassification to earnings " 29,500 " " $(29,500)" "June 30, 20X2" " (42,820)" " 42,820 " " $(29,500)" " $29,500 " Interest accrued (870) 870 Payment (receipt) " 2,500 " " $(2,500)" Effect of change in rates " 8,030 " " (8,030)" Reclassification to earnings " (2,500)" " $2,500 " "September 30, 20X2" " (33,160)" " 33,160 " " $2,500 " " $(2,500)" Interest accrued (670) 670 Payment (receipt) " 5,250 " " $(5,250)" Effect of change in rates " 6,730 " " (6,730)" Reclassification to earnings " (5,250)" " $5,250 " "December 31, 20X2" " (21,850)" " 21,850 " " $5,250 " " $(5,250)" Interest accrued (440) 440 Payment (receipt) " 8,000 " " $(8,000)" Effect of change in rates " 16,250 " " (16,250)" Reclassification to earnings " (8,000)" " $8,000 " "March 31, 20X3" " 1,960 " " (1,960)" " $8,000 " " $(8,000)" Interest accrued 40 (40) Payment (receipt) " (2,000)" " $2,000 " Reclassification to earnings " 2,000 " " $(2,000)" "June 30, 20X3" $- $- " $(2,000)" " $2,000 " ##### [815-30-55-32](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:272ae3fe9a77022565f5e5d393f451466b191fdf5afa8b5c20169738fe7ab0cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The preceding table shows that, in each quarter, the net cash receipt or payment on the swap equals the income or expense to be recorded. The net effect on earnings of the interest on the bonds and the reclassification of gains or losses on the interest rate swap are presented in the same income statement line item as the earnings effect of the hedged item. The net earnings effect is shown in the following table. - ![](https://asc.understandingaccounting.org/asc-img/GUID-11E7EC3D-D71B-4795-B0AD-5DDB6898BBF3-low.gif) Earnings For the Quarter Ending Interest on Bonds Gains (Losses) Reclassified from Other Comprehensive Income Net Effect 9/30/X1 " $195,250 " " $27,250 " " $222,500 " 12/31/X1 " 197,000 " " 25,500 " " 222,500 " 3/31/X2 " 195,250 " " 27,250 " " 222,500 " 6/30/X2 " 193,000 " " 29,500 " " 222,500 " 9/30/X2 " 225,000 " " (2,500)" " 222,500 " 12/31/X2 " 227,750 " " (5,250)" " 222,500 " 3/31/X3 " 230,500 " " (8,000)" " 222,500 " 6/30/X3 " 220,500 " " 2,000 " " 222,500 " Totals " $1,684,250 " " $95,750 " " $1,780,000 " ##### [815-30-55-33](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:992dc7ce593ff0b5cc584482e0ec56bba5a8e827692e71debdc9c88d55523b1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, the shortcut method described in paragraph [815-30-55-25](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-25) works as follows. The difference between the variable rate on the interest rate swap and the variable rate on the asset is a net receipt of 2.25 percent. That rate combined with the 6.65 percent fixed rate received on the interest rate swap is 8.9 percent. The computed interest income is $890,000 per year or $222,500 per quarter, which is the same as the amount in the table in the preceding paragraph. ##### [815-30-55-34](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b3f175f277fa8ae49aaa3658df8a1353b2e9ea4df518a05cdff165ae406afd10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-35](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:71b0f9823f8a8820068e7d0fbd7bc900fd463054c2bffbe08aee7727752ccd37 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-36](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:ce8b1d99ddb2d681adc9f9989e125fe61b7031ccf74064c7d3158b96ac168e90 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-37](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:416f5ae9c0c9daae1c08ab1d8f23fb700c0ecec513c9c9006fa0e7c765ea4595 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-38](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:6d0909ef51bb71e8b7006cc65d3ddd30a976b101071b1d1d97bdd532bd5d60f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-39](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:502783b9d7060fb026b3661fd11d906b00d9f0fadd1beb616ec27089cdafc7fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-40](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c1fb0f60e5f589d2e43190a89ecc78aa0a984dbc8514a4a1acf25f97cb9445ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the effect on earnings and other comprehensive income of discontinuing a cash flow hedge by dedesignating the hedging derivative under paragraph [815-30-40-1(c)](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1) before the variability of the cash flows from the hedged forecasted transaction has been eliminated. It also discusses the effect that the location of a physical asset has on the effectiveness of a hedging relationship. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. ##### [815-30-55-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-41) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:5e3bdb4f3e700d7a96255c15ac3d3d1e751dd45285ab7157781d9738c78d694f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On February 3, 20X1, Entity JKL forecasts the purchase of 100,000 bushels of corn on May 20, 20X1. The contract does not contain a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09."), and Entity JKL designates changes in cash flows related to the forecasted transaction attributable to all changes in the purchase price as the hedged risk. It expects to sell finished products produced from the corn on May 31, 20X1. On February 3, 20X1, Entity JKL enters into 20 futures contracts, each for the purchase of 5,000 bushels of corn on May 20, 20X1 (100,000 in total), and designates those contracts as a hedging instrument in a cash flow hedge of the forecasted purchase of corn. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On February 3, 20X1, Entity JKL forecasts the purchase of 100,000 bushels of corn on May 20, 20X1. Entity JKL designates changes in cash flows related to the forecasted transaction attributable to all changes in the purchase price as the hedged risk. It expects to sell finished products produced from the corn on May 31, 20X1. On February 3, 20X1, Entity JKL enters into 20 futures contracts, each for the purchase of 5,000 bushels of corn on May 20, 20X1 (100,000 in total), and designates those contracts as a hedging instrument in a cash flow hedge of the forecasted purchase of corn. ##### [815-30-55-42](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c30aa91146f086dd6fad9898422e1a8a61fb96ac5b90b66d671c0a8a72425e79 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JKL chooses to assess effectiveness by comparing the entire change in fair value of the futures contracts to changes in the expected cash flows on the forecasted transaction. Entity JKL estimates its expected cash flows on the forecasted transaction based on the futures price of corn adjusted for the difference between the cost of corn delivered to Chicago and the cost of corn delivered to Minneapolis. Entity JKL does not choose to use a tailing strategy (as described in paragraph [815-20-25-121](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-121)). Entity JKL expects changes in fair value of the futures contracts to be highly effective at offsetting changes in the expected cash outflows for the forecasted purchase of corn because both of the following conditions exist: 1. a The futures contracts are for the same variety and grade of corn that Entity JKL plans to purchase. 2. b On May 20, 20X1, the futures price for delivery on May 20, 20X1 will be equal to the spot price (because futures prices and spot prices converge as the delivery date approaches). However, the hedge may not achieve perfect offset between the hedged item and hedging instrument because of the difference in the delivery location between the hedging instrument and forecasted transaction. ##### [815-30-55-43](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e6a24430b86ad7871289fefc73df4df912fae90a078033d2edbc10c0d5d75755 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JKL will purchase corn for delivery to its production facilities in Minneapolis, but the price of the futures contracts is based on delivery of corn to Chicago. Changes in the difference between the price of corn delivered to Chicago and the price of corn delivered to Minneapolis would result in not achieving perfect offset between the hedged item and hedging instrument and, if of significant magnitude, may preclude the hedging relationship from achieving highly effective offset. ##### [815-30-55-44](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:7906c8d08385e6d25ad9a5a1987a390440f313bb87dab5fe5bfa719a61ba1864 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On February 3, 20X1, the futures price of corn for delivery to Chicago on May 20, 20X1, is $2.6875 per bushel resulting in a total price of $268,750 for 100,000 bushels. ##### [815-30-55-45](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:68055776ae6ec32b2ac6b84ae608e15767acbe6fd47922d200ac35c38b46123e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On May 1, 20X1, Entity JKL dedesignates the related futures contracts and closes them out by entering into offsetting contracts on the same exchange. As of that date, Entity JKL had recognized in accumulated other comprehensive income gains on the futures contracts of $26,250. Entity JKL still plans to purchase 100,000 bushels of corn on May 20, 20X1. Consequently, the gains that occurred before dedesignation will remain in other comprehensive income until the finished product is sold. If Entity JKL had not closed out the futures contracts when it dedesignated them, any further gains or losses would have been recognized in earnings. ##### [815-30-55-46](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:0446f409510bcf3f2aa008297724c67c4d0f9be9d1dde9021afec12e283b5ec4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On May 20, 20X1, Entity JKL purchases 100,000 bushels of corn, and on May 31, 20X1, Entity JKL sells the finished product. ##### [815-30-55-47](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:d528d184743e2ae37f7fc9e4878f1d725b4074bda5d5a692189800d7027210a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The futures prices of corn that are in effect on key dates are assumed to be as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A5E6DFBA-1E1F-4558-97C8-E48B044BC3E3-low.gif) Date "Futures Price per Bushel for Delivery to Chicago on May 20, 20X1" "Futures Price Adjusted for Delivery to Minneapolis on May 20, 20X1" "Inception of hedging relationship—February 3, 20X1" $2.6875 $2.7375 "End of quarter—March 31, 20X1" 3.1000 3.1500 "Discontinue hedge—May 1, 20X1" 2.9500 3.0000 "Purchase of corn—May 20, 20X1" 2.8500 2.9000 ##### [815-30-55-48](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:172421641aeb73c58bd3778fcf833de96b1404c248d6fa51d354f243ba1787bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The changes in fair value of the futures contracts between inception (February 3, 20X1) and discontinuation (May 1, 20X1) of the hedge are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7EC88010-5122-4F60-BC1D-2B7037B81D34-low.gif) "February 3- March 31, 20X1" "April 1- May 1, 20X1" Futures price at beginning of period $2.6875 $3.1000 Futures price at end of period 3.1000 2.9500 Change in price per bushel 0.4125 (0.1500) "Bushels under contract (20 contracts @ 5,000 bushels each)" "× 100,000" "× 100,000" Change in fair value—gain (loss) " $41,250 " " $(15,000)" ##### [815-30-55-49](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a9c1cdcd399d7ce50f54be10fc795e2699ecf00a9dc950759637ec15809e4ffa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table displays the entries to recognize the effects of all of the following: 1. a Entering into futures contracts as a hedge of the forecasted purchase of corn 2. b Dedesignating and closing out the futures contracts 3. c Completing the forecasted purchase of corn 4. d Selling the finished products produced from the corn. Because the difference in prices between corn delivered to Chicago and corn delivered to Minneapolis ($.05 per bushel, as illustrated in paragraph [815-30-55-47](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-47)) did not change during the period of the hedge, the hedging relationship achieved perfect offset between the hedged item and the hedging instrument. If that difference had changed, the entire change in fair value of the futures contracts would still have been recorded in accumulated other comprehensive income until the discontinuation date assuming the hedging relationship remained highly effective at offsetting variability in cash flows and the hedged forecasted transaction was still probable of occurring. - ![](https://asc.understandingaccounting.org/asc-img/GUID-248786FA-F10F-4480-8BE2-65CC7C6EA1BB-low.gif) Debit (Credit) Cash Inventory Other Comprehensive Income Earnings (a) "March 31, 20X1 (end of quarter)" Recognize change in fair value of futures contracts " $41,250 " " $(41,250)" "May 1, 20X1 (discontinue hedge)" Recognize change in fair value of futures contracts " (15,000)" " 15,000 " "May 20, 20X1" Recognize purchase of corn " (290,000)" " $290,000 " "May 31, 20X1" Recognize cost of sale of product " (290,000)" " $290,000 " Reclassify changes in fair value of futures contracts to earnings " 26,250 " " (26,250)" Total " $(263,750)" $- $- " $263,750 " (a) The change in the fair value of the hedging derivative is presented in the same income statement line item as the earnings effect of the hedged item. ##### [815-30-55-50](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:035ccc2d8ff2acfa8f24fcfab705279c96e630eaa299af52a1c1f1691d34a0fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To simplify this Example and focus on the effects of the hedging relationship, the margin account with the clearinghouse and certain amounts that would be involved in a sale of Entity JKL's inventory (for example, additional costs of production, selling costs, and sales revenue) have been ignored. ##### [815-30-55-51](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:68cb85d020be797a2959d6ce589996c19960883528375433991d207acfd73ac4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect of the hedging strategy is that the cost of the corn recognized in earnings when the finished product was sold was $263,750. If the hedging relationship had not been discontinued early, the cost recognized in earnings would have been $273,750, which was the futures price of the corn, adjusted for delivery to Minneapolis, at the inception of the hedge. Without the strategy, Entity JKL would have recognized $290,000, which was the price of corn delivered to Minneapolis at the time it was purchased. ##### [815-30-55-52](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:13010c24c3e84f230a11066a5fb3d038910478b476f19be01ea686db6bef8dcd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases describe the effects on earnings and other comprehensive income of certain changes in a cash flow hedging relationship: 1. a The variability of the hedged interest payments is eliminated before the hedging derivative expires (Case A). 2. b The interest rate index that is the basis for the hedged interest payments is changed to a different index before the hedging derivative expires (Case B). ##### [815-30-55-53](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:8a5b124344c8b88f77bccfdc9ee687e160dab6a155ef588d08af78b7b3563e6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A and B share the following assumptions. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. ##### [815-30-55-54](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:57f3c2f4cc9123c6840769e2895cd4d5f00efe2a7533cb15b8a712559f8dcf21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity MNO enters into an interest rate swap (Swap 1) and designates it as a hedge of the variable quarterly interest payments on Entity MNO's 5-year $5 million borrowing program, initially expected to be accomplished by a series of $5 million notes with 90-day terms. Entity MNO plans to continue issuing new 90-day notes over the next 5 years as each outstanding note matures. The interest on each note will be determined based on the contractually specified LIBOR rate at the time each note is issued. Swap 1 requires a settlement every 90 days, and the variable interest rate is reset immediately following each payment. Entity MNO pays a fixed rate of interest (6.5 percent) and receives interest at LIBOR. Entity MNO neither pays nor receives a premium at the inception of Swap 1. The notional amount of the contract is $5 million, and it expires in 5 years. ##### [815-30-55-55](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a54ea89d2f997edc202fcab50ebf47b08f2e9f1d60143c7b515576358f9bebc1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because Swap 1 and the hedged forecasted interest payments are based on the same notional amount, have the same reset dates, and are based on the same contractually specified interest rate (that is, the LIBOR rate) designated under paragraph [815-20-25-15(j)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), Entity MNO may conclude that the hedging relationship will perfectly offset changes in cash flows of the hedged item attributable to the hedged risk and the hedging instrument (absent a default by the interest rate swap counterparty). ##### [815-30-55-56](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:9bbe73b199340980d902f07245a32329e1783ebb62ba0a38ba7b58ed6849d3d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph explains why the guidance in Example 4, Case B (see paragraph [815-20-55-97](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-97)) does not conflict with the guidance in this Example. In the cash flow hedge in this Example, had the hedged forecasted transaction been narrowly limited to the interest payments on specific future debt issuances rather than on the five-year borrowing program, the failure to engage in future debt issuances would cause the related derivative instrument net gain or loss in other comprehensive income to be immediately reclassified into earnings pursuant to paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) because it would have been probable that the hedged forecasted transactions would not occur. Furthermore, if that failure is part of a pattern of hedged forecasted transactions being probable of not occurring, it would call into question both an entity's ability to accurately predict forecasted transactions and the propriety of using hedge accounting in the future for similar forecasted transactions, pursuant to paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). In contrast, in Example 4, Case B (see paragraph [815-20-55-97](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-97)), the hedged quarterly interest payments were directly linked to Entity B's existing LIBOR-indexed floating-rate assets. When those existing assets are later prepaid or sold, the future quarterly interest payments on those specific assets are no longer probable of occurring (that is, no longer probable of being received by Entity B). Consequently, the hedging relationships for those future quarterly interest payments fail to meet the criterion in paragraph [815-20-25-15(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) and must be discontinued under paragraph [815-30-40-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1). Because it is probable that the hedged quarterly interest payments that were directly linked to assets that were prepaid or sold will not occur, the related derivative instrument net gain or loss in other comprehensive income must be immediately reclassified into earnings pursuant to paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) . ##### [815-30-55-57](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2e91dffb3879f231102b55758e96212f5ca02d7b6a18ae0e61b6ef70214579c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the second year of the 5-year hedging relationship, Entity MNO discontinues its practice of issuing 90-day notes. Instead, Entity MNO issues a 3-year, $5 million note with a fixed rate of interest (7.25 percent). Because the interest rate on the three-year note is fixed, the variability of the future interest payments has been eliminated. Thus, Swap 1 no longer qualifies for cash flow hedge accounting. However, the net gain or loss on Swap 1 in accumulated other comprehensive income is not reclassified to earnings immediately. Immediate reclassification is required (and permitted) only if it becomes probable that the hedged transactions (future interest payments) will not occur. The variability of the payments has been eliminated, but it still is probable that they will occur. Thus, those gains or losses will continue to be reclassified from accumulated other comprehensive income to earnings as the interest payments affect earnings (as required by paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) ) and presented in the same income statement line item as the earnings effect of the hedged item. If the term of the fixed rate note had been longer than three years, the amounts in accumulated other comprehensive income still would have been reclassified into earnings over the next three years, which was the term of the designated hedging relationship. ##### [815-30-55-58](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:ec97742363a59f0bfcafa704cbe940f44a861bd305f4745a3172e76759257c3b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Rather than liquidate the pay-fixed, receive-variable Swap 1, Entity MNO enters into a pay-floating, receive-fixed interest rate swap (Swap 2) with a 3-year term and a notional amount of $5 million. Entity MNO neither pays nor receives a premium. Like Swap 1, Swap 2 requires a settlement every 90 days and reprices immediately following each settlement. The relationship between 90-day interest rates and longer term rates has changed since Entity MNO entered into Swap 1 (that is, the shape of the yield curve is different). As a result, Swap 2 has different terms and its settlements do not exactly offset the settlements on Swap 1. Under the terms of Swap 2, Entity MNO will receive a fixed rate of 7.25 percent and pay interest at LIBOR. ##### [815-30-55-59](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:1aede091de35e7272d1f7026b08ac405a57ad4b68d22d76fe5e1920039d557d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The two swaps are not designated as hedging instruments and are reported at fair value. The changes in fair value are reported immediately in earnings and offset each other to a significant degree. ##### [815-30-55-60](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-60) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:15f129426e734d13352e8ae06ddcbd8c0c3108de0e483d9e19eedd0180804c14 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the second year of the 5-year hedging relationship, Entity MNO discontinues its practice of issuing 90-day notes and issues a 3-year, $5 million note with a different contractually specified interest rate (that is, an interest rate that is not LIBOR) that adjusts every 90 days. As of this date, Entity MNO must begin performing assessments of effectiveness for the hedging relationship by comparing changes in fair value of the hedging instrument (indexed to LIBOR) with changes in the value of the hedged item based on the revised contractually specified interest rate. Because the hedged forecasted transactions (future interest payments) are still probable of occurring, Entity MNO may continue to apply hedge accounting in accordance with paragraph [815-30-35-37A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37A) if the hedging instrument (indexed to LIBOR) is highly effective at achieving offsetting cash flows attributable to the revised contractually specified interest rate. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)At the end of the second year of the 5-year hedging relationship, Entity MNO discontinues its practice of issuing 90-day notes and issues a 3-year, $5 million note with a different contractually specified interest rate (that is, an interest rate that is not LIBOR) that adjusts every 90 days. As of this date, Entity MNO must begin performing assessments of effectiveness for the hedging relationship by comparing changes in fair value of the hedging instrument (indexed to LIBOR) with changes in the value of the hedged item based on the different contractually specified interest rate. Because the hedged forecasted transactions (future interest payments) are still probable of occurring, Entity MNO may continue to apply hedge accounting if the hedging instrument (indexed to LIBOR) is highly effective at achieving offsetting cash flows attributable to the different contractually specified interest rate. ##### [815-30-55-61](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-61) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:afe4bbf0e30dfe32eed38efe9d541953e6a86ee47033584078c8f9a34243a7ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the revised hedging relationship is not determined to be highly effective, the hedging relationship must be discontinued. However, the net gain or loss on Swap 1 in accumulated other comprehensive income as of the date Entity MNO issues the three-year note is not reclassified into earnings immediately. Immediate reclassification would be required only if, as part of its normal process of assessing whether it remains probable that the hedged forecasted transaction will occur, Entity MNO determines that it is probable that the hedged transactions (future interest payments) will not occur. In this case, the expected amounts of those payments have changed (because they will be based on a revised contractually specified interest rate instead of LIBOR, as originally expected), but it still is probable that the payments will occur. Thus, those gains or losses will continue to be reclassified to earnings as the interest payments affect earnings and presented in the same income statement line item as the earnings effect of the hedged item. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)If the hedging relationship is not determined to be highly effective, the hedging relationship must be discontinued. However, the net gain or loss on Swap 1 in accumulated other comprehensive income as of the date Entity MNO issues the three-year note is not reclassified into earnings immediately. Immediate reclassification would be required only if, as part of its normal process of assessing whether it remains probable that the hedged forecasted transaction will occur, Entity MNO determines that it is probable that the hedged transactions (future interest payments) will not occur. In this case, the expected amounts of those payments have changed (because they will be based on a different contractually specified interest rate instead of LIBOR, as originally expected), but it still is probable that the payments will occur. Thus, those gains or losses will continue to be reclassified to earnings as the interest payments affect earnings and presented in the same income statement line item as the earnings effect of the hedged item. ##### [815-30-55-62](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e7bf57437366ab835c34aaa11fc244dc2e2b13d410ee99d2d3a3048f8240564a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-63](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:9cfdb0a7f4f8e9c5e104ddb891d789ee5356fc0db155090bec5c4c43d9315e7c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the accounting guidance for cash flow hedges described in paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3). At the beginning of Period 1, Entity XYZ purchases for $9.25 an at-the-money call option on 1 unit of Commodity X with a strike price of $125.00 to hedge a forecasted purchase of 1 unit of that commodity projected to occur early in Period 5. Entity XYZ's documented policy is to assess hedge effectiveness by comparing changes in expected cash flows on the hedged transaction (based on changes in the Commodity X spot price) with changes in the option contract's intrinsic value. Because the hedging instrument is a purchased call option, its intrinsic value cannot be less than zero. If the price of the commodity is less than the option's strike price, the option is out-of-the-money. Its intrinsic value cannot decrease further regardless of how far the commodity price falls, and the intrinsic value will not increase until the commodity price increases to exceed the strike price. Thus, changes in cash flows from the option due to changes in its intrinsic value will offset changes in cash flows on the forecasted purchase only when the option is in the money or at the money. That phenomenon is demonstrated in Period 3 in the following table when the commodity price declines by $1.25. Because the commodity price is $.75 below the option's strike price, the option's intrinsic value declines by only $.50 (to zero). The effect reverses in Period 4 when the commodity index price increases by $6.50 and the option's intrinsic value increases by $5.75. - ![](https://asc.understandingaccounting.org/asc-img/GUID-BFDBD8E6-BDAD-4529-AC10-9178EC3D3CFC-low.gif) Period 1 Period 2 Period 3 Period 4 Assumptions Ending market price of Commodity X $127.25 $125.50 $124.25 $130.75 Ending fair value of option: Time value $7.50 $5.50 $3.00 $- Intrinsic value 2.25 0.50 - 5.75 Total $9.75 $6.00 $3.00 $5.75 Change in time value $(1.75) $(2.00) $(2.50) $(3.00) Change in intrinsic value 2.25 (1.75) (0.50) 5.75 Total current-period gain (loss) on derivative $0.50 $(3.75) $(3.00) $2.75 "Gain (loss) on derivative, adjusted to remove the component excluded from effectiveness test:" For the current period $2.25 $(1.75) $(0.50) $5.75 Cumulative 2.25 0.50 - 5.75 Change in expected future cash flows on hedged transaction: For the current period (2.25) 1.75 1.25 (6.50) Cumulative (2.25) (0.50) 0.75 (5.75) ##### [815-30-55-64](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:64950276fe428b456f853a32a5a9324e1e0e984fca64bed3cb154607945d87ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are the entries required to account for the cash flow hedge. Note that consistent with paragraph [815-20-35-1(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-1), the change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness is recorded in other comprehensive income for qualifying hedging relationships. For this type of hedging relationship, Entity XYZ elects to record changes in the option's time value excluded from the assessment of hedge effectiveness currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). Amounts recorded in earnings should be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A). - ![](https://asc.understandingaccounting.org/asc-img/GUID-AC8A72CC-F2A1-4584-A755-F0A4C0F0CC3B-low.gif) Debit (Credit) Period Description Derivative Earnings Other Comprehensive Income 1 Adjust derivative to fair value and other comprehensive income by the calculated amount $0.50 $1.75 $(2.25) 2 Adjust derivative to fair value and other comprehensive income by the calculated amount (3.75) 2.00 1.75 3 Adjust derivative to fair value and other comprehensive income by the calculated amount (3.00) 2.50 0.50 4 Adjust derivative to fair value and other comprehensive income by the calculated amount 2.75 3.00 (5.75) ##### [815-30-55-65](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:1d4b960916d49f84c9ebae0c2ea2e331ad91c8c861d43de0939c79dd0081b22e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-66](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:319dfb3a6d2a1efde0017dd057063cdec60590c0cb9b42b32af8fed32c397bff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount reflected in earnings relates to the component excluded from the effectiveness test, that is, the time value component. The change in cash flows from the hedged transaction was not fully offset in Period 3. However, as described in paragraph [815-20-25-76](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-76), a purchased call option is considered effective if it provides one-sided offset. ##### [815-30-55-67](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:edb58acfb921e5c785dbb8fd2934e4e17c1486037749e2cc387836e195ccc45b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to a hedging relationship involving a single hedging derivative and three separate forecasted transactions. The three transactions occur on three separate dates, but the payment on receivables related to all three occurs on the same date. The settlement of the hedging derivative will occur on the date the receivable is paid. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. ##### [815-30-55-68](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:95bcccf5a8a8427f97b31007967e8360b696ab15549a4d8cb3ddd27f3c263e0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity DEF's functional currency is the U.S. dollar (USD). Entity ZYX's functional currency is the euro (EUR). Effective January 1, 20X1, Entity DEF enters into a royalty agreement with Entity ZYX that gives Entity ZYX the right to use Entity DEF's technology in manufacturing Product X. On April 30, 20X1, Entity ZYX will pay Entity DEF a royalty of EUR 1 million for each unit of Product X sold by that date. Entity DEF expects Entity ZYX to sell one unit of Product X on January 31, one on February 28, and one on March 31. The forecasted royalty is probable because Entity ZYX has identified a demand for Product X and no other supplier has the capacity to fill that demand. ##### [815-30-55-69](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:07a05b87e1d9e5fcc3006568509a5522b2412ab174ee13a4accfed24d1d99a38 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Also on January 1, 20X1, Entity DEF enters into a forward contract to sell EUR 3 million on April 30, 20X1, for a price equal to the forward price of USD 0.6057 per EUR. Entity DEF designates the forward contract as a hedge of the risk of changes in its functional-currency-equivalent cash flows attributable to changes in the EUR-USD exchange rates related to the forecasted receipt of EUR 3 million from the royalty agreement. The spot price and forward price of EUR at January 1, 20X1, and the USD equivalent of EUR 3 million at those prices are assumed to be as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-49FD6614-EB8A-4D89-859E-E15C0CF28582-low.gif) "Prices at January 1, 20X1" USD per EUR "USD Equivalent of EUR 3 Million" Spot price USD 0.6019 USD " 1,805,700 " 4-month forward price 0.6057 " 1,817,100 " ##### [815-30-55-70](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e124f477fe34059b7c32716d56a49d6db88dd27adc727b2e18b0549f7bcc799b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity DEF will exclude from its assessment of effectiveness the portion of the fair value of the forward contract attributable to the spot-forward difference (the difference between the spot exchange rate and the forward exchange rate). Entity DEF elects to recognize changes in that portion of the derivative instrument's fair value currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). Entity DEF will estimate the cash flows on the forecasted transactions based on the current spot exchange rate and will discount that amount. Thus, Entity DEF will assess effectiveness by comparing the following amounts: 1. a Changes in the fair value of the forward contract attributable to changes in the USD spot price of EUR 2. b Changes in the present value of the forecasted cash flows based on the current spot exchange rate. ##### [815-30-55-71](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:835cba01d4bec6a31ca27d21d7f45190bb1fb33a0f4ec8632b90935fddefa696 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Those two changes will exactly offset because the currency and the notional amount of the forward contract match the currency and the total of the expected foreign currency amounts of the forecasted transactions. Thus, if Entity DEF dedesignates a proportion of the forward contract each time a royalty is recognized (as described in the following paragraph), the hedging relationship will meet the highly effective criterion. ##### [815-30-55-72](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:6849b1bf1dc66fd5f84c6e0115de72fb1a09936ef16e259b6da7292d48d3827c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As each royalty is recognized, Entity DEF recognizes a receivable and royalty income. The forecasted transaction (the recognition of royalty income) has occurred. The receivable is an asset, not a forecasted transaction, and would separately be eligible to be designated as a fair value hedge of [foreign exchange risk](https://asc.understandingaccounting.org/glossary/f/#foreign-exchange-risk "The risk of changes in a hedged item's fair value or functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates.") or continue to be eligible as a cash flow hedge of foreign exchange risk. Consequently, if the variability of the functional currency cash flows related to the royalty receivable is not being hedged, Entity DEF will dedesignate a proportion of the hedging instrument in the original hedging relationship with respect to the proportion of the forward contract corresponding to the recognized royalty. As the royalty is recognized in earnings and each proportion of the derivative instrument is dedesignated, the related derivative instrument gain or loss in accumulated other comprehensive income is reclassified into earnings and presented in the same income statement line item as the earnings effect of the hedged item. After that date, any gain or loss on the dedesignated proportion of the derivative instrument and any transaction loss or gain on the royalty receivable will be recognized in earnings and may substantially offset each other. ##### [815-30-55-73](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a4d52582fc3794bddf59b9946764a00700260b4ff8fd9c1292b40908805c7d2b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subtopic 830-20 requires immediate recognition in earnings of any foreign currency transaction gain or loss on a foreign-currency-denominated receivable that is not designated as a hedging instrument. Therefore, the effect of changes in spot prices on the royalty receivable must be recognized immediately in earnings. ##### [815-30-55-74](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a8afe2304088829447ebc8acddcd0d545780cd71bb167962aa7c88343d37a24c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The spot prices and forward prices for settlement on April 30, 20X1, in effect at inception of the hedge (January 1, 20X1) and at the end of each month between inception and April 30, 20X1, are assumed to be as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-0098DEC8-CE56-46BC-998C-37C28E512709-low.gif) USD per EUR Spot Price Forward Price for Settlement on 4/30/X1 January 1 USD 0.6019 USD 0.6057 January 31 0.5970 0.6000 February 28 0.5909 0.5926 March 31 0.5847 0.5855 April 30 0.5729 0.5729 ##### [815-30-55-75](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:18d4708a9d570eab4daf527ce89b6c3f1543ced557f1cc8871172479d9a5ce16 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The changes in fair value of the forward contract that are recognized each month in earnings and other comprehensive income are shown in the following table. Amounts reclassified from accumulated other comprehensive income to earnings and amounts excluded from the assessment of hedge effectiveness are presented in the same income statement line item as the earnings effect of the hedged item. The fair value of the forward is the present value of the difference between the USD to be received on the forward (USD 1,817,100) and the USD equivalent of EUR 3 million based on the current forward rate. A 6 percent discount rate is used in this Example. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F13A7942-9AB1-44D7-AEC3-3C2411411506-low.gif) Debit (Credit) Forward Contract Earnings Other Comprehensive Income Fair value on January 1 $- Period ended January 31: Change in spot-forward difference " 2,364 " " $(2,364)" Change in fair value of dedesignated proportion - - Change in fair value of designated proportion " 14,482 " " $(14,482)" Reclassification of gain - " (4,827)" " 4,827 " Fair value on January 31 " 16,846 " Period ended February 28: Change in spot-forward difference " 3,873 " " (3,873)" Change in fair value of dedesignated proportion " 6,063 " " (6,063)" Change in fair value of designated proportion " 12,127 " " (12,127)" Reclassification of gain - " (10,891)" " 10,891 " Fair value on February 28 " 38,909 " Period ended March 31: Change in spot-forward difference " 2,718 " " (2,718)" Change in fair value of dedesignated proportion " 12,448 " " (12,448)" Change in fair value of designated proportion " 6,223 " " (6,223)" Reclassification of gain - " (17,114)" " 17,114 " Fair value on March 31 " 60,298 " Period ended April 30: Change in spot-forward difference " 2,445 " " (2,445)" Change in fair value of dedesignated proportion " 35,657 " " (35,657)" Change in fair value of designated proportion - - Fair value on April 30 " $98,400 " Cumulative effect " $(98,400)" - ##### [815-30-55-76](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:16f97f5937bb74a88860f4b61ee0411a9b846bf487a963d51ce01887ce171e5e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect on earnings of the royalty agreement and hedging relationship illustrated in this Example is summarized by month in the following table. - ![](https://asc.understandingaccounting.org/asc-img/GUID-5636EBBE-85F3-476C-BCE7-B055A63B0FEA-low.gif) Amounts Recognized in Earnings Related to Receivable Forward Contract Period Ended USD Equivalent of EUR 1 Million Royalty Foreign Currency Transaction Gain (Loss) "Amount Attributable to the Dedesignated Proportion" Reclassifications from Other Comprehensive Income "Amount Attributable to the Difference between the Spot and Forward rates" "Total Amount Reported in Earnings" January 31 " $597,000 " $- $- " $4,827 " " $2,364 " " $604,191 " February 28 " 590,900 " " (6,100)" " 6,063 " " 10,891 " " 3,873 " " 605,627 " March 31 " 584,700 " " (12,400)" " 12,458 " " 17,104 " " 2,718 " " 604,580 " April 30 - " (35,400)" " 35,657 " - " 2,445 " " 2,702 " " $1,772,600 " " $(53,900)" " $54,178 " " $38,822 " " $11,400 " " $1,817,100 " " $98,400 " ##### [815-30-55-77](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-77) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:15ca2869cf0273591715371fc1539fde2948417ef27421660ead00521a1b4c95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in this Subtopic to reporting cash flow hedges in [comprehensive income](https://asc.understandingaccounting.org/glossary/c/#comprehensive-income "The change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income comprises both of the following:All components of net incomeAll components of other comprehensive income.") and accumulated other comprehensive income. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. ##### [815-30-55-78](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:22547772cb17eb5eb5a22fe70306db169cc32a935333bde0b9118f56f2e49be6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity TUV's cash flow hedge transactions through the end of 20X4 include all of the following: 1. a It continually purchases pork belly futures contracts to hedge its anticipated purchases of pork belly inventory. 2. b In 20X2, it entered into a Euro (EUR) forward exchange contract to hedge the foreign currency risk associated with the expected purchase of a pork belly processing machine with a five-year life that it bought from a vendor in Germany at the end of 20X2. 3. c In 20X2, it entered into a 10-year interest rate swap concurrent with the issuance of 10-year variable rate debt (cash flow hedge of future variable interest payments). 4. d In January 20X4, it entered into a two-year Swiss franc (CHF) forward exchange contract to hedge a forecasted export sale (denominated in CHF, expected to occur in December 20X5) of hot dogs to a large customer in Switzerland. In June 20X4, it closed the forward contract, but the forecasted transaction is still expected to occur. ##### [815-30-55-79](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-79) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:6afbc564d7c2646eadb9a473cb77a58a54c14d42fc1b09bd68ed9272d94ccb00 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table reconciles the beginning and ending accumulated other comprehensive income balances for 20X4. It supports the comprehensive income display and disclosures that are required under Topic 220. It is assumed that there are no other amounts in accumulated other comprehensive income. The after-tax amounts assume a 30 percent effective tax rate. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7E0A2445-8B01-4C65-BFA4-1E4C0C44D7B3-low.gif) Other Comprehensive Income—Debit (Credit) Accumulated Other Comprehensive Income as of 1/1/X4 Changes in Fair Value Recognized in 20X4 Reclassification Adjustments Accumulated Other Comprehensive Income as of 12/31/X4 Derivatives designated as hedges of: Inventory purchases $230 $85 $(270) $45 Equipment purchase 120 (30) 90 Variable interest rate payments (40) 10 5 (25) Export sale - (50) - (50) Before-tax totals $310 $45 $(295) $60 After-tax totals $217 $32 $(207) $42 ##### [815-30-55-80](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:5835b789c56acfe33d71d1ab04d6c29edac2cda4d6ec1c2cc5c5bb723be235a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate an acceptable method, under the provisions of Topic 220, of reporting the transactions described by this Example in earnings, comprehensive income, and shareholders' equity. - ![](https://asc.understandingaccounting.org/asc-img/GUID-9BE23BED-9034-49DF-9DBE-4ABF2CB9EB65-low.gif) "Effect of Selected Items on Earnings and Comprehensive Income Year Ended December 31, 20X4" Debit (Credit) Effect on earnings before taxes: Cost of goods sold $270 Depreciation 30 Interest (5) Total 295 Income tax effect (88) (a) Effect on earnings after taxes $207 "Other comprehensive income, net of tax:" Cash flow hedges: "Net derivative losses, net of tax effect of $13" 32 "Reclassification adjustments, net of tax effect of $88" (207) Net change (175) Effect on total comprehensive income $32 (a) "This Example assumes that it is appropriate under the circumstances, in accordance with Topic 740, to recognize the related income tax benefit in the current year." - ![](https://asc.understandingaccounting.org/asc-img/GUID-C9EF1B4E-C681-4A1A-8C46-8A9D9EF1FC41-low.gif) Effect of Selected Items on Shareholders' Equity "Year Ended December 31, 20X4 " Debit (Credit) Accumulated other comprehensive income: "Balance on December 31, 20X3" $217 Net change during the year related to cash flow hedges (175) "Balance on December 31, 20X4" $42 ##### [815-30-55-81](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:5b7b6f79ede8fd9213613c5a1a68be1092350ec0bb6bf23118d62781ea092721 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to accounting for a cash flow hedge of a fixed-rate foreign-currency-denominated debt in which all of the variability in the functional-currency-equivalent cash flows are eliminated by the effect of the hedge. ##### [815-30-55-82](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:1610ca1a18bdbca17fed8c62df9a0f42f1659008bade3a53f596a59ecd166ae6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On July 1, 20X1, Entity DEF, a U.S. dollar (USD) functional currency entity, issues a zero-coupon debt instrument with a notional amount of FC 154,766.79 for FC 96,098.00. The interest rate implicit in the debt is 10 percent. The debt will mature on June 30, 20X6. Entity DEF enters into a forward contract to buy FC 154,766.79 in 5 years at the forward rate of 1.090148194 (USD 168,718.74) and designates the forward contract as a hedge of the variability of the USD functional currency equivalent cash flows on the debt. Because the currency, notional amount, and maturity of the debt and the forward contract match, the entity concludes that the hedging relationship will achieve perfect offset. The USD interest rate implicit in the forward contract is 11.028 percent. The market data, period end balances, and journal entries from cash flow hedge accounting are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-6C26DE2E-6252-4C9C-BCB2-EBD54AF69051-low.gif) Period Spot Rate USD/Functional Currency Forward Rate USD/Functional Currency Forward Rate Difference Foreign Currency Present Value USD Spot Amounts USD Debt (@11.028%) Fair Value Forward USD 0 1.040604383 1.090148194 0 " $96,098.00 " " $100,000.00 " " $100,000.00 " $- 1 1.1 1.184985966 0.094837771 " 105,707.80 " " 116,278.58 " " 111,028.04 " " 9,327.97 " 2 1.1 1.163142906 0.072994712 " 116,278.58 " " 127,906.44 " " 123,272.25 " " 8,041.09 " 3 1.1 1.141702484 0.051554290 " 127,906.44 " " 140,697.08 " " 136,866.76 " " 6,360.72 " 4 1.1 1.120657277 0.030509083 " 140,697.08 " " 154,766.79 " " 151,960.48 " " 4,215.89 " 5 1.1 1.1 0.009851806 " 154,766.79 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-4C6A5044-7505-41AC-95F1-0B75DB0FD5F6-low.gif) Cash Forward Debt Other Comprehensive Income Interest Expense Transaction Loss 7/1/20X1 Borrow money " $100,000.00 " " $(100,000.00)" 6/30/20X2 Accrue interest on debt " (10,570.78)" " $10,570.78 " 6/30/20X2 Mark debt to spot " (5,707.80)" " $(5,707.80)" 6/30/20X2 Mark forward to fair value " $9,327.97 " " $(4,077.43)" 457.26 " (5,707.80)" 6/30/20X2 Balances " 100,000.00 " " 9,327.97 " " (116,278.58)" " (4,077.43)" " 11,028.04 " - 6/30/20X3 Accrue interest on debt " (11,627.86)" " 11,627.86 " 6/30/20X3 Mark forward to fair value " (1,286.88)" 670.53 616.35 6/30/20X3 Balances " 100,000.00 " " 8,041.08 " " (127,906.44)" " (3,406.90)" " 23,272.25 " 6/30/20X4 Accrue interest on debt " (12,790.64)" " 12,790.64 " - 6/30/20X4 Mark forward to fair value " (1,680.37)" 876.50 803.87 6/30/20X4 Balances " 100,000.00 " " 6,360.71 " " (140,697.08)" " (2,530.40)" " 36,866.76 " 6/30/20X5 Accrue interest on debt " (14,069.71)" " 14,069.71 " 6/30/20X5 Mark forward to fair value " (2,144.84)" " 1,120.83 " " 1,024.01 " 6/30/20X5 Balances " 100,000.00 " " 4,215.88 " " (154,766.79)" " (1,409.57)" " 51,960.48 " 6/30/20X6 Accrue interest on debt " (15,476.68)" " 15,476.68 " 6/30/20X6 Mark forward to fair value " (2,691.15)" " 1,409.57 " " 1,281.58 " 6/30/20X6 Balances " $100,000.00 " " $1,524.72 " " $(170,243.47)" $- " $68,718.74 " - ##### [815-30-55-83](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:957d031dc98cb077a9ae032f9aec1a4191e0129cb3a50882d464dd4f5a3a81d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Following are journal entries at inception of the loan and at the end of the first year. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7FDCDC9F-5B9E-4DED-9D57-82EB7A6820F6-low.gif) 7/1/20X1 Debit Credit Cash " $100,000.00 " Functional currency debt at spot " $100,000.00 " To record FC borrowing in USD. 6/30/20X2 Debit Credit Interest expense " $10,570.78 " Debt " $10,570.78 " To accrue interest. Period end spot rate used for simplicity. Transaction loss " $5,707.80 " Debt " $5,707.80 " To record a transaction loss on the debt. Derivative asset " $9,327.97 " Other comprehensive Income " $9,327.97 " To record a derivative instrument at fair value and record the gain on the derivative in other comprehensive income. Other comprehensive income " $5,250.54 " Interest expense 457.26 Transaction gain/loss " $5,707.80 " To reclassify an amount out of accumulated other comprehensive income to do both of the following: a. To increase interest expense to the USD yield of 11.028 percent b. To offset the transaction loss on the debt. ##### [815-30-55-84](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-84) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2536c2536ee3c34624142e32b6d913d63703d4cc8f36331332917ac0a52822e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Journal entries for the remaining four years are not displayed. ##### [815-30-55-85](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:88f40836eb47f04da86ad1e405b8d6aa6905873d7526cba1b723b55c5a6135aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example would also be relevant for a non-interest-bearing foreign-currency-denominated receivable or payable instrument. An amount based on the rate implicit in the forward contract would be reported in earnings each period. Given the short maturities of many receivables and payables, the amount reported in earnings each period may be small. ##### [815-30-55-86](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2872e6e0b0abc4526ec6be581ad3bfdbaea66ffe00c1ed27f3b3ff6d10343fe3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-39 through 25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) . This Example has the following assumptions: 1. a Parent A is a multinational corporation that has the U.S. dollar (USD) as its functional currency. 2. b Parent A has the following two subsidiaries: 1. 1 Subsidiary B, which has the Euro (EUR) as its functional currency 2. 2 Subsidiary C, which has the Japanese yen (JPY) as its functional currency. 3. c Subsidiary B manufactures a product and has a forecasted sale of the product to Subsidiary C that will be transacted in JPY. ##### [815-30-55-87](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:30b722e993d0ee2dd3017b11b10ac201b0a6e46c6eb71983fe44f4face1825f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Eventually, Subsidiary C will sell the product to an unrelated third party in JPY. Subsidiary B enters into a forward contract with an unrelated third party to hedge the cash flow exposure of its forecasted intra-entity sale in JPY to changes in the EUR-JPY exchange rate. ##### [815-30-55-88](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-88) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:4ee6688800370ec4d4b440303405bfcf0e1b890ad016a432b5a13c1549acbb6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transaction in this Example meets the hedge criteria of paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-39 through 25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) , which permits a derivative instrument to be designated as a hedge of the foreign currency exposure of variability in the functional-currency-equivalent cash flows associated with a forecasted intra-entity foreign-currency-denominated transaction if certain criteria are met. Specifically, the operating unit having the foreign currency exposure (Subsidiary B) is a party to the hedging instrument; the hedged transaction is denominated in JPY, which is a currency other than Subsidiary B's functional currency; and all other applicable criteria in Section 815-20-25 are satisfied. ##### [815-30-55-89](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e0e84fd0b7ccf51b6126f5d63d686e9892ddefa34db1fed19c61d6099eff9e14 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiary B measures the derivative instrument at fair value and records the gain or loss on the derivative instrument in accumulated other comprehensive income. In the consolidated financial statements, the amount in other comprehensive income representing the gain or loss on a derivative instrument designated in a cash flow hedge of a forecasted foreign-currency-denominated intra-entity sale should be reclassified into earnings in the period that the revenue from the sale of the manufactured product to an unrelated third party is recognized and presented in earnings in the same income statement line item as the earnings effect of the hedged item. The reclassification into earnings in the consolidated financial statements should occur when the forecasted sale affects the earnings of Parent A. Because the consolidated earnings of Parent A will not be affected until the sale of the product by Subsidiary C to the unrelated third party occurs, the reclassification of the amount of derivative gain or loss from other comprehensive income into earnings in the consolidated financial statements should occur upon the sale by Subsidiary C to an unrelated third party. ##### [815-30-55-90](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:8417f52ad3ed2c5b558700b0a09bb60eaad1afe64c473c0aa1357556f2e598a3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance is relevant only with respect to the consolidated financial statements. In Subsidiary B's separate entity financial statements, the reclassification of the amount of the derivative instrument gain or loss from other comprehensive income into earnings should occur in the period the forecasted intra-entity sale is recorded because Subsidiary B's earnings are affected by the change in the EUR-JPY exchange rate when the sale to Subsidiary C occurs. ##### [815-30-55-91](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:966d2c332886b4e1876a875da455e7536e278aee4c697725d578b6700315159d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example demonstrates the application of the change-in-variable-cash-flows method discussed in paragraph [815-30-35-16](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-16)to assess hedge effectiveness. ##### [815-30-55-92](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:32cf1f9ef97ac144cd2638c51d175ac8f8f2ce030f2b28e1df1ad677d8a39ee4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity designates a receive-variable, pay-fixed interest rate swap with a zero fair value as a hedge of variable interest rate payments on a debt instrument. The variable leg of the interest rate swap is based on the three-month U.S. Treasury rate, and the variable cash flows of the debt are based on three-month LIBOR. Assume that the overall change in fair value of the interest rate swap from inception of the hedge is $16,300, the present value of the cumulative change in the cash flow on the variable leg of the interest rate swap is a gain (increased cash inflow) of $16,596, and the present value of the cumulative change in the expected future interest cash flows on the variable-rate liability due to changes in the cash flows expected for the remainder of the hedge term is a loss (increased cash outflow) of $16,396. (The cumulative changes in expected future cash flows on both the variable leg of the interest rate swap and the variable-rate debt are discounted using the rates applicable to determining the fair value of the derivative instrument.) ##### [815-30-55-93](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:5daab031a933958da9101d654f30220d6090b8187f023bedade22cf06680049d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-30-55-93A](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-93A) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:bb4970ddd95eac6bb687a19a6feb1c260e81668119c16073cdebf1b763943052 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The entity assesses effectiveness by comparing the present value of the cumulative change in the cash flow on the variable leg of the interest rate swap of $16,596 with the present value of the cumulative change in the expected future interest cash flows on the variable-rate liability of $16,396 and concludes that the hedging relationship is highly effective. As a result, the balance in accumulated other comprehensive income would reflect the cumulative change in the fair value of the swap since hedge inception ($16,300). ##### [815-30-55-94](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b6bcaf68a07a6e48d2e0c1bdc7f41e8f932fc6f7c37b782e9c6b3b17eb5e7b24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the effect on accumulated other comprehensive income of issuing debt with a term that is shorter than originally forecasted. ##### [815-30-55-95](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:56addc50a36456294314fd093295e68ca86fb508a3258a603745ff53c37a4c23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A expects to borrow $100 million over a 10-year period beginning in 6 months. Entity A initially plans to issue $100 million of 10-year fixed-rate debt at or near par at the then-current market interest rate; consequently, Entity A will be exposed to variability in cash flows in the future quarterly interest payments on the debt due to changes in [credit risk](https://asc.understandingaccounting.org/glossary/c/#credit-risk "For purposes of a hedged item in a fair value hedge, credit risk is the risk of changes in the hedged item's fair value attributable to both of the following: Changes in the obligor's creditworthiness Changes in the spread over the benchmark interest ratewith respect to the hedged item's credit sector at inception of the hedge. For purposes of a hedged transaction in a cash flow hedge, credit risk is the risk of changes in the hedged transaction's cash flows attributable to all of the following: Default Changes in the obligor's creditworthiness Changes in the spread over the contractually specified interest rate or the benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge.") and interest rate risk that occur during this 6-month period before issuance. To hedge the risk of changes in these 40 quarterly interest payments attributable to changes in the [benchmark interest rate](https://asc.understandingaccounting.org/glossary/b/#benchmark-interest-rate "A widely recognized and quoted rate in an active financial market that is broadly indicative of the overall level of interest rates attributable to high-credit-quality obligors in that market. It is a rate that is widely used in a given financial market as an underlying basis for determining the interest rates of individual financial instruments and commonly referenced in interest-rate-related transactions. In theory, the benchmark interest rate should be a risk-free rate (that is, has no risk of default). In some markets, government borrowing rates may serve as a benchmark. In other markets, the benchmark interest rate may be an interbank offered rate.") for the 6-month period, Entity A does all of the following: 1. a It enters into a derivative instrument (for example, a forward-starting interest rate swap). 2. b It documents that it is hedging the variability in the 40 future quarterly interest payments, attributable to changes in the benchmark interest rate, over the next 10 years related to its 10-year $100 million borrowing program that begins in 6 months. 3. c It documents that it will assess the effectiveness of the hedging relationship semimonthly on a quantitative basis. ##### [815-30-55-96](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:68bab273c21e65ad77c7e9092c75fd702f6f03bc5b22604965c0554fc14334df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Six months after inception of the hedging relationship, Entity A issues debt. However, due to market conditions, Entity A decides in the week before issuance that it will issue $100 million of fixed-rate debt with a 5-year maturity and quarterly interest payments. ##### [815-30-55-97](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-97) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a8c4714086f8bc22d424e6f29a0dbfb09b81a4f4b2940b78603edde809464753 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When Entity A decides that the term of the debt to be issued will differ from the term of the debt originally expected to be issued, Entity A should not immediately reclassify into earnings the entire net gain or loss in accumulated other comprehensive income related to the derivative instrument. Instead, Entity A must first apply the requirements of paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) using its originally documented hedging strategy and the newly revised best estimate of the cash flows. That is, the assessment of hedge effectiveness should be based on the most recent best estimate of the hedged forecasted transaction as of the date that a cash flow hedge is discontinued prospectively. ##### [815-30-55-98](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-98) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:4577f0f2bd83a676c8b9513b3a51af852c85200de0f2474323c7b53e7040c036 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A's strategy is a cash flow hedge of 40 individual probable quarterly interest payments. A cash flow hedge of future interest payments is a hedge of a series of forecasted transactions; consequently, Entity A must first determine the likelihood of whether and when each forecasted transaction in the series will occur. If at any time during the hedging relationship Entity A determines that it is no longer probable that any of the forecasted transactions in the series will occur by the date (or within the time period) originally specified, it must terminate the original hedging relationship for each of those specific nonprobable forecasted transactions (even if the forecasted transaction will occur within an additional two-month period of time after that originally specified date). ##### [815-30-55-98A](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-98A) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:fdae88f86db7f2a70a6c846f45230042f354d3473ecc5529c1b822ba9b479967 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When Entity A performs its semimonthly assessment of effectiveness for the half-month period immediately preceding the issuance of the debt, it could also possibly conclude that the hedging relationship is no longer considered highly effective under paragraph [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) because the actual variability in the hedged interest payments for Years 1-5 is now based on the 5-year borrowing rate—not on 10-year rates as expected at the inception of the hedge when the entity selected the hedging derivative. In that circumstance, the hedging relationship is terminated. After the hedging relationship is terminated, Entity A must determine whether it is probable that any or all of those specific nonprobable forecasted transactions will not occur by the date (or within the time period) originally specified or within an additional two-month period of time thereafter (see paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) ). ##### [815-30-55-99](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e6767506bf55323f402f38b7074d0ee2e512de0e5bd336cbfa661f0c426384e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When Entity A originally documented the hedging relationship, it was hedging 40 forecasted transactions (forecasted quarterly interest payments) that would begin in 6 months' time and continue over a 10-year period. In this Example, Entity A terminates the hedging relationship no later than on the date it issues the 5-year debt (because the variability of the first 20 hedged payments ceases on that date) and must determine the amount, if any, to be reclassified into earnings from accumulated other comprehensive income related to the net derivative gain or loss of the terminated cash flow hedge. Because Entity A issued a 5-year debt instrument, Entity A would determine that it is probable that the first 20 forecasted transactions would occur because they are now contractual obligations. Entity A must determine that it is not probable that any of the last 20 forecasted transactions will not occur to continue reporting the net derivative gain or loss related to these forecasted transactions in accumulated other comprehensive income. At issue is whether it is probable that the five-year debt will not be replaced by new borrowings that will involve the quarterly payment of interest. Provided that the entity determines that it is not probable that any of the original 40 forecasted transactions will not occur, Entity A must apply paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) and continue to report an amount in accumulated other comprehensive income based on the most recent best estimate of the hedged forecasted transactions related to all 40 forecasted transactions and reclassify an appropriate amount into earnings when each hedged forecasted transaction affects earnings and present those amounts in the same income statement line item as the earnings effect of the hedged item. If Entity A determines that it is probable that any of those forecasted transactions will not occur either by the end of the date (or within the time period) originally specified or within an additional two-month period of time thereafter (see paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) ), Entity A should reclassify into earnings from accumulated other comprehensive income the amount of the net derivative instrument gain or loss related to those specific nonoccurring forecasted transactions. That amount should be equivalent to the portion of the present value of the derivative instrument's cash flows intended to offset the changes in the original forecasted transactions for which Entity A has determined it is probable that they will not occur by the date (or within the time period) originally specified or within an additional two-month period of time thereafter. Thus, the nonoccurrence of one of the hedged forecasted transactions described in this Example could potentially jeopardize Entity A's ability to use cash flow hedge accounting in the future for the situation described. ##### [815-30-55-100](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:9ac5c83f31ede07104ad21553f096846485de54e1523c6ac9a6508a7d8be6913 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) to changes in timing of a forecasted transaction in relation to an originally specified time period: 1. a Transactions to occur within two months of end of originally specified time period (Case A) 2. b Transactions not to occur within two months of end of originally specified time period (Case B). ##### [815-30-55-101](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c4194e1c2adbe631e3560a17d0c58abb7eff358e446885475040ead121d7c52b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, an entity enters into a hedge of the variability in the total cash flows of a forecasted sale of the first 100 units of a specified product during the 3-month period from February 1 to April 30. Gains and losses on the hedging instrument are accumulated in other comprehensive income and reclassified into earnings as sales occur and are presented in the same income statement line item as the earnings effect of the hedged item. However, as of March 10, only 60 units of the product have been sold and the entity determines that it is probable that the sale of the remaining 40 units will not occur by April 30. As a result, the entity must discontinue cash flow hedge accounting under the originally designated hedging relationship as of March 10 (pursuant to paragraph [815-30-40-1(a)](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1)). ##### [815-30-55-102](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c48418706cecbc2b53164522ca9ba891cfebe19dfd2dd6d2a4e339c985a87ca2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, the entity determines that it is probable that the sale of the remaining 40 units will occur by June 20. Based on this new information, the entity is permitted to designate a new cash flow hedge under which subsequent derivative instrument gains and losses would receive cash flow hedge accounting. This Example focuses on the derivative instrument gains and losses that have been accumulated in other comprehensive income at March 10 with respect to the remaining 40 unsold units. The derivative instrument gains or losses accumulated in other comprehensive income related to the sale of the remaining 40 units should not be reclassified into earnings as of March 10 because the entity determined on that date that it is at least reasonably possible that the forecasted transactions will occur within the two-month period following April 30 (the end of the originally specified time period). ##### [815-30-55-103](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2a50e3c3edcf42a218826a52de844973af229f55c70cbc3ada8b2e9da9379a5d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, the entity determined on March 10 that it is probable that the sale of the remaining 40 units will not occur by June 30 but it was reasonably possible that the sale would occur in July or August. ##### [815-30-55-104](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c0e1ba9a2f0a27569c440cc607a8e0d1f1cacda1ce4edd1f3e1678f44ac73a05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In that circumstance, the derivative instrument gains or losses accumulated in other comprehensive income related to the sale of the remaining 40 units must be reclassified into earnings as of March 10 because the entity would have determined on that date that it is probable that the forecasted transactions will neither occur by the end of the originally specified time period (that is, April 30) nor within the allowable additional two-month period of time (ending on June 30). ##### [815-30-55-105](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b5f83f0724157d590e2d4dddca533507aa9128b246a5dc80c1e635e3b22117d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Furthermore, the example indicates no extenuating circumstances that could justify applying the exception related to a forecasted transaction that is probable of occurring on a date beyond the additional two-month period of time. ##### [815-30-55-106](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e099d61c2e72596717fab2dae45f20d69fa93681bbbf8dc17837402fd5d412ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraphs [815-30-35-9](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-9) and [815-20-25-34 through 25-36](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-34) , which permit an entity to designate a single cash flow hedge that encompasses the variability of functional-currency-equivalent cash flows attributable to foreign exchange risk related to the settlement of a foreign-currency-denominated receivable or payable resulting from a forecasted sale or purchase on credit. ##### [815-30-55-107](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e65f177b4c8a7e57cbdde60d0068e65ab025c89e3a95c0897c0656252e5a2ab1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 1. a Entity A, a U.S. dollar (USD) functional currency entity, forecasts the purchase of inventory on credit for FC 100,000 in 182 days with settlement of the payable in 227 days. The purchase will occur July 15 on credit; the resulting payable will settle August 29. 2. b Entity A enters into a forward contract to purchase FC 100,000 in 227 days at the forward rate of USD .6614 = FC 1. 3. c Entity A designates a single cash flow hedge that encompasses the variability of functional-currency-equivalent cash flows attributable to foreign exchange risk related to the settlement of the foreign-currency-denominated payable resulting from the forecasted purchase on credit. 4. d After the initial quantitative effectiveness test, Entity A elects to assess effectiveness on a quantitative basis based on forward rates. ##### [815-30-55-108](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:5e9e86e61112ed8838f24e4d7d02d9f43e3a58f99961c17fb592d48b5e10731a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Exchange rates are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-19E5D41A-6593-479F-901B-76290F50040C-low.gif) Period Spot 8/29 Forward 7/15 Forward 1/14 0.6575 0.6614 0.6605 3/31 0.6757 0.6793 6/30 0.6689 0.6734 7/15 0.6761 0.6767 8/29 0.6798 0.6798 ##### [815-30-55-109](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:ad0e9663aaa976dcb087ac11b437d94b84ab5b49f45f285ff45d7d8d16c08653 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A would record the following journal entries. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E0F14D6F-C890-4AE6-B041-8698B7137A60-low.gif) Debit (Credit) Cash Inventory Forward Contract Accounts Payable Earnings Accum. Other Comprehensive Income Inception 1/14 — — — — — — March 31 entry (76 days): Mark forward to fair value " $1,703 " " $(1,703)" June 30 entry (91 days): Mark forward to fair value (526) 526 July 15 entries (15 days): Inventory purchase " $67,610 " " $(67,610)" August 29 entries (45 days): Mark forward to fair value 663 (663) Functional currency transaction loss on payable (370) $370 Adjustment for paragraph 815-30-35-3(d)—offset the functional currency transaction loss (370) 370 Adjustment for paragraph 815-30-35-3(d)—effect of hedge (based on implicit interest rate; see paragraph 815-30-55-112) 78 (78) Settlement of payable " $(67,980)" " 67,980 " Settlement of forward " 1,840 " " (1,840)" " $(66,140)" " $67,610 " $- $- $78 " $(1,548)" ##### [815-30-55-110](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a6b7a3f64dd529b08de24e391f87313aac7350e17cfafcb61cdb444459f4353a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upon sale of the inventory, Entity A would record cost of goods sold of $67,610 and reclassify $1,548 from other comprehensive income to earnings to achieve a net cost of goods sold of $66,062. The effect of the hedge would result in a net cost to Entity A of $66,140 for the purchase of the inventory. ##### [815-30-55-111](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:dec1d1b52987ec3310e809aa48dde4231bc7cc5f9677584d2b2fa00feb0713ba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of the adjustment under paragraph [815-30-35-3(d)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) is that amount needed to ensure that a net amount in earnings reflects the effect of the hedge through each reporting period up to and including the final settlement of the payable. ##### [815-30-55-112](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:97257b3cda25c44e9f812f4689329d35186dcbba226952f6944c152283a49c13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of cost or income to be ascribed to each period is calculated as follows. - Daily interest rate implicit in the hedging relationship as a result of the forward contract: $65,750 PV, $66,140 FV, 227n, i = 0.0026053% - ![](https://asc.understandingaccounting.org/asc-img/GUID-78D0617D-7B80-4D52-9B9C-095A668F8350-low.gif) 1/14 " $65,750 " 3/31 " 65,880 " $130 6/30 " 66,036 " 156 7/15 " 66,062 " 26 8/29 " 66,140 " 78 $390 - ![](https://asc.understandingaccounting.org/asc-img/GUID-511A645C-4EE8-429E-A249-BCFDDE5D47DE-low.gif) Method using two foreign currency forward exchange rates: From 1/14 to 7/15 "7/15 Forward Rate .6605 $66,050 - $65,750 =" $300 From 7/16 to 8/29 "8/29 Forward Rate .6614 $66,140 - $66,050 =" 90 $390 Pro rata method: From 1/14 to 7/15: $390 × 182/227 = $313 From 7/16 to 8/29: $390 × 45/227 = 77 $390 ##### [815-30-55-113](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2bcad3c8bcf56485659875bb2bb31780bc442240ac3ccfaca416c38ca86e08eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraphs [815-20-25-61 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-61) , specifically, the mechanism for offsetting risks assumed by a Treasury Center using [internal derivatives](https://asc.understandingaccounting.org/glossary/i/#internal-derivative "A foreign currency derivative instrument that has been entered into with another member of a consolidated group (such as a treasury center).") on a net basis with third-party contracts. This Example does not demonstrate the computation of fair values and as such makes certain simplifying assumptions. ##### [815-30-55-114](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:91838f33e6b64fa04043f7cb3c1a6487838d5ca18dce6c40466663b25c2bfa0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity XYZ is a U.S. entity with the U.S. dollar (USD) as both its functional currency and its reporting currency. Entity XYZ has three subsidiaries: Subsidiary A is located in Germany and has the Euro (EUR) as its functional currency, Subsidiary B is located in Japan and has the Japanese yen (JPY) as its functional currency, and Subsidiary C is located in the United Kingdom and has the pound sterling (GBP) as its functional currency. Entity XYZ uses its Treasury Center to manage foreign exchange risk on a centralized basis. Foreign exchange risk assumed by Subsidiaries A, B, and C through transactions with external third parties is transferred to the Treasury Center via internal contracts. The Treasury Center then offsets that exposure to foreign currency risk via third-party contracts. To the extent possible, the Treasury Center offsets exposure to each individual currency on a net basis with third-party contracts. ##### [815-30-55-115](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-115) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b1fb533aa3b045c55994de8d7fa1e77be34151c6ceb8a3b7e9275f57ee16aaa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, Subsidiaries A, B, and C decide that various foreign-currency-denominated forecasted transactions with external third parties for purchases and sales of various goods are probable. Also on January 1, Subsidiaries A, B, and C enter into internal foreign currency forward contracts with the Treasury Center to hedge the foreign exchange risk of those transactions with respect to their individual functional currencies. The Treasury Center has the same functional currency as the parent entity (USD). ##### [815-30-55-116](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-116) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c9f4748c713d4c2d0e33ae65060e0dd2d3ab3edb999ac30c91ffe741e2e26850 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiaries A, B, and C have the following foreign currency exposures and enter into the following internal contracts with the Treasury Center. - ![](https://asc.understandingaccounting.org/asc-img/GUID-199B1F1E-C743-453F-ABCD-FAE9D0FD08DD-low.gif) "Internal Contracts with Treasury Center" Subsidiary Functional Currency "Forecasted Exposures" Expected Transaction Date Currency Received Currency Paid A (German) EUR "JPY payable 12,000" Jun 1 "JPY 12,000" EUR 115 (a) GBP receivable 50 Jun 1 EUR 80 (a) GBP 50 B (Japanese) JPY USD payable 100 Jun 15 USD 100 "JPY 10,160 (a) " EUR receivable 100 Jun 15 "JPY 10,432 (a)" EUR 100 C (UK) GBP USD receivable 330 Jun 30 GBP 201 (a) USD 330 (a) Computed based on forward exchange rates as of January 1. ##### [815-30-55-117](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c3108fdf59834059833ca9868359744a7b1e1eda20f2b8726952b9c6861f9f3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiaries A, B, and C designate the internal contracts with the Treasury Center as cash flow hedges of their foreign currency forecasted purchases and sales. Those internal contracts may be designated as hedging instruments in the consolidated financial statements if the requirements of this Subtopic are met. From the subsidiaries' perspectives, the requirements of paragraph [815-20-25-61](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-61) for foreign currency cash flow hedge accounting are satisfied as follows: 1. a From the perspective of the hedging affiliate, the hedging relationship must meet the requirements of paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-39 through 25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) for cash flow hedge accounting. Subsidiaries A, B, and C meet those requirements. In each hedging relationship, the forecasted transaction being hedged is denominated in a currency other than the subsidiary's functional currency, and the individual subsidiary that has the foreign currency exposure relative to its functional currency is a party to the hedging instrument. In addition, the criteria in Section 815-20-25 are met. Specifically, each subsidiary prepares formal documentation of the hedging relationships, including the date on which the forecasted transactions are expected to occur and the amount of foreign currency being hedged. The forecasted transactions being hedged are specifically identified, are probable of occurring, and are transactions with external third parties that create cash flow exposure that would affect reported earnings. Each subsidiary also documents its expectation of high effectiveness based on the internal derivatives designated as hedging instruments. 2. b The affiliate that issues the hedge must offset the internal derivative either individually or on a net basis. The Treasury Center determines that it will offset the exposure arising from the internal derivatives with Subsidiaries A, B, and C on a net basis with third-party contracts. Each currency for which a net exposure exists at the Treasury Center is offset by a third-party contract based on that currency. ##### [815-30-55-118](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:7c314595c8b35f300759eef6ba08209e261fa6ef6233c56a2ed746a1520af707 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To determine the net currency exposure arising from the internal contracts with Subsidiaries A, B, and C, the Treasury Center performs the following analysis. - ![](https://asc.understandingaccounting.org/asc-img/GUID-3630B1B3-036C-4E2C-9B67-7DE8471F22DE-low.gif) Subsidiary Perspective—Internal Contracts with the Treasury Center Contract with Treasure Center Currency Received (Currency Paid) Subsidiary EUR JPY GBP USD A (German) Internal Contract 1 (115) " 12,000 " Internal Contract 2 80 (50) B (Japanese) Internal Contract 3 " (10,160)" 100 Internal Contract 4 (100) " 10,432 " C (UK) Internal Contract 5 201 (330) Net exposure (135) " 12,272 " 151 (230) - ![](https://asc.understandingaccounting.org/asc-img/GUID-60F5E728-948F-42E9-A278-2BD50C4E82DE-low.gif) Treasury Center Perspective—Internal Contracts with the Subsidiaries Contract with Treasury Center Currency Received (Currency Paid) Subsidiary EUR JPY GBP USD A (German) Internal Contract 1 115 " (12,000)" Internal Contract 2 (80) 50 B (Japanese) Internal Contract 3 " 10,160 " (100) Internal Contract 4 100 " (10,432)" C (UK) Internal Contract 5 (201) 330 Net exposure 135 " (12,272)" (151) 230 ##### [815-30-55-119](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:f0ef216bd9cb5e339122ce4ebf686f26991f30b84a0194bea80ca56771174146 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For Subsidiaries A, B, and C to designate the internal contracts as hedging instruments in the consolidated financial statements, the Treasury Center must meet certain required criteria outlined in paragraphs [815-20-25-62 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) in determining how it will offset exposure arising from multiple internal derivatives that it has issued. Based on a determination that those requirements are satisfied (see the following paragraph, the Treasury Center determines the net exposure in each currency with respect to USD (its functional currency). The Treasury Center determines that it will enter into the following three third-party foreign currency forward contracts. The Treasury Center enters into the contracts on January 1. The contracts mature on June 30. - ![](https://asc.understandingaccounting.org/asc-img/GUID-B6E91CCB-580B-4DAD-AE98-D5A1ED9B0D70-low.gif) Treasury Center's Contracts with Unrelated Third Parties Currency Bought (Currency Sold) EUR JPY BP USD Third-Party Contract 1 (135) 138 (a) Third-Party Contract 2 " 12,272 " (121) (a) Third-Party Contract 3 151 (247) (a) Net exposure (135) " 12,272 " 151 (230) (a) Computed based on forward exchange rates as of January 1. ##### [815-30-55-120](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2475645216aa24bcdccc137de49f1a755d8154a0126e3d4c1990ee27d4b8e42b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. From the Treasury Center's perspective, the required criteria in paragraphs [815-20-25-62 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) are satisfied as follows: 1. a The issuing affiliate enters into a derivative instrument with an unrelated third party to offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivatives, and the derivative instrument with the unrelated third party generates equal or closely approximating gains and losses when compared with the aggregate or net losses and gains generated by the derivative instruments issued to affiliates. The Treasury Center enters into third-party derivative instruments to offset the exposure of each foreign currency on a net basis. The Treasury Center offsets 100 percent of the net exposure to each currency; that is, the Treasury Center does not selectively keep any portion of that exposure. In this Example, the Treasury Center's third-party contracts generate losses that are equal to the losses on internal contracts designated as hedging instruments by Subsidiaries A, B, and C (see analysis beginning in the following paragraph). 2. b Internal derivatives that are not designated as hedging instruments and all nonderivative instruments are excluded from the determination of the foreign currency exposure on a net basis that is offset by the third-party derivative instrument. The Treasury Center does not include in the determination of net exposure any internal derivatives not designated as hedging instruments or any nonderivative instruments. 3. c Foreign currency exposure that is offset by a single net third-party contract arises from internal derivatives that involve the same currency and that mature within the same 31-day period. The offsetting net third-party derivative instrument related to that group of contracts must offset the aggregate or net exposure to that currency, must mature within the same 31-day period, and must be entered into within 3 business days after the designation of the internal derivatives as hedging instruments. The Treasury Center's third-party net contracts involve the same currency (that is, not a tandem currency) as the net exposure arising from the internal derivatives issued to Subsidiaries A, B, and C. The Treasury Center's third-party derivative instruments mature within the same 31-day period as the internal contracts that involve currencies that are offset on a net basis. In this Example, for simplicity, all internal contracts and third-party derivative instruments are entered into on the same date. 4. d The issuing affiliate tracks the exposure that it acquires from each hedging affiliate and maintains documentation supporting linkage of each derivative instrument and the offsetting aggregate or net derivative instrument with an unrelated third party. The Treasury Center maintains documentation supporting linkage of third-party contracts and internal contracts throughout the hedge period. 5. e The issuing affiliate does not alter or terminate the offsetting derivative instrument with an unrelated third party unless the hedging affiliate initiates that action. If the issuing affiliate does alter or terminate the offsetting third-party derivative (which should be rare), the hedging affiliate must prospectively cease hedge accounting for the internal derivatives that are offset by that third-party derivative. Based on Entity XYZ's policy, the Treasury Center may not alter or terminate the offsetting derivative instrument with an unrelated third party unless the hedging affiliate initiates that action. 6. f If an internal derivative that is included in determining the foreign currency exposure on a net basis is modified or dedesignated as a hedging instrument, compliance must be reassessed. For simplicity, this Example does not involve a modification or dedesignation of an internal derivative. ##### [815-30-55-121](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:970920b976ccde7f9a8bc0431ef9d9a162ac0338a524b5ef3ec0b2455802967d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the quarter, each subsidiary determines the functional currency gains and losses for each contract with the Treasury Center. - ![](https://asc.understandingaccounting.org/asc-img/GUID-20A4830D-F004-4872-990B-D58543E20920-low.gif) Subsidiary Contract with Treasury Center Beginning of Period Functional Currency Amount Receive (Pay) (a) "End of Period Functional Currency Amount Receive (Pay) (a)" "Functional Currency Gain (Loss) (b)" "US Dollar Gain (Loss) (c)" A (German) Internal Contract 1 (115) (115) - - Internal Contract 2 80 83 (3) (3) B (Japanese) Internal Contract 3 " (10,160)" " (10,738)" 578 5 Internal Contract 4 " 10,432 " " 10,421 " 11 - C (UK) Internal Contract 5 201 204 (3) (5) Net USD Gain (Loss) (3) (a) Computed based on forward exchange rates as of January 1 and March 31. (b) "For simplicity, functional currency gains or losses are not discounted in this Example." (c) Functional currency gains and losses converted to USD based on current spot rates. ##### [815-30-55-122](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:35af3db213ffb38c5d54b85ff6f5e6f0ceb55678d842e14f2c8af778c4d9a791 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the quarter, the Treasury Center determines its gains or losses on third-party contracts. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4FBC849F-8815-4F23-8051-235AFB31800A-low.gif) Contracts with Third Parties Beginning of Period USD Amount Receive (Pay) (a) End of Period USD Amount Receive (Pay) (a) "USD Gain (Loss) (b)" Third-Party Contract 1 138 131 7 Third-Party Contract 2 (121) (114) (7) Third-Party Contract 3 (247) (244) (3) Net USD Gain (Loss) (3) (a) Computed based on forward exchange rates as of January 1 and March 31. (b) "For simplicity, gains or losses are not discounted in this Example." ##### [815-30-55-123](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:92f68c672f2c5b58174c2b8d3658725326bc13f88d57e32a7775381b088cf786 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Journal Entries at March 31 (Note: All journal entries are in USD.) - ![](https://asc.understandingaccounting.org/asc-img/GUID-DB951A1C-56A7-4C7F-BF15-35E0809FB98A-low.gif) Subsidiaries' Journal Entries German Subsidiary A There is no entry for Contract 1 because the USD gain or loss is zero. Other comprehensive income $3 Derivative liability $3 To record the loss on Internal Contract 2. Japanese Subsidiary B Derivative asset $5 Other comprehensive income $5 To record the gain on Contract 3. There is no entry for Internal Contract 4 because the USD gain or loss is zero. UK Subsidiary C Other comprehensive income $5 Derivative liability $5 To record the loss on Internal Contract 5. Treasury Center's Journal Entries Journal Entries for Internal Contracts with Subsidiaries There is no entry for Internal Contract 1 because the USD gain or loss is zero. Derivative asset $3 Earnings $3 To record the gain on Internal Contract 2 with German Subsidiary A. Earnings 5 Derivative liability 5 To record the loss on Internal Contract 3 with Japanese Subsidiary B. There is no entry for Internal Contract 4 because the USD gain or loss is zero. Derivative asset 5 Earnings 5 To record the gain on Internal Contract 5 with UK Subsidiary C. Journal Entries for Third-Party Contracts Derivative asset $7 Earnings $7 To record the gain on Third-Party Contract 1. Earnings 7 Derivative liability 7 To record the loss on Third-Party Contract 2. Earnings 3 Derivative liability 3 To record the loss on Third-Party Contract 3. Results in Consolidation Derivative asset $7 Other comprehensive income 3 Derivative liability $10 ##### [815-30-55-124](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:0b539c97037dfb4bed882f8cdb3e8e89c5538027e2be3fabf04028b14ec0aa7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In consolidation, the amounts in the balance sheets of Subsidiaries A, B, and C reflecting derivative instrument assets and derivative instrument liabilities arising from internal derivatives acquired from the Treasury Center eliminate against the Treasury Center's derivative instrument liabilities and derivative instrument assets arising from internal derivatives issued to the subsidiaries. The amount reflected in consolidated other comprehensive income reflects the net entry to other comprehensive income of Subsidiaries A, B, and C. The Treasury Center's gross derivative instrument asset and gross derivative instrument liability arising from third-party contracts are also reflected in the consolidated balance sheet. Based on the assumptions in this Example, the Treasury Center's net loss on third-party derivative instruments used to offset the exposure, on a net basis, of internal contracts with Subsidiaries A, B, and C equals the net loss on internal contracts with the subsidiaries. Therefore, within the Treasury Center, the gains on internal contracts issued to Subsidiaries A, B, and C, and the losses on third-party contracts are equal and offsetting. If the Treasury Center's net gain or loss on third-party contracts does not equal the net gain or loss on internal derivatives designated as hedging instruments by affiliates, the difference must be recognized in consolidated other comprehensive income. ##### [815-30-55-125](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:ae645c62846b9eb9c2ee9352f885496f8ec150ba9ec116641f92899ecb6c65fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The reclassification of amounts out of consolidated other comprehensive income is based on Subsidiaries A, B, and C's internal contracts with the Treasury Center. That is, the reclassification of amounts out of consolidated other comprehensive income into earnings is based on the timing and amounts of the individual subsidiaries' forecasted transactions. In this Example, at June 30, the forecasted transactions at Subsidiaries A, B, and C have been consummated and the net debit amount in consolidated other comprehensive income of 3 has been reversed. ##### [815-30-55-126](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:df006749d9cff91d82c62b5e1d0d642ba9431be472f71ed2522acbddd0605405 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates when the hedging instrument's gain or loss that is reported in accumulated other comprehensive income should be reclassified out of accumulated other comprehensive income into earnings under paragraph [815-30-35-36](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-36). ##### [815-30-55-127](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:0c2269b92cf2529e9e07d856c4fdda5e82e6ab7cfc88cdd249b8324210a7b572 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity forecasts that 1 year later it will purchase 1,000 ounces of gold at then current market prices for use in its operations. The entity wishes to protect itself against increases in the cost of gold above the current market price of $275 per ounce. The entity purchases a 1-year cash-settled at-the-money gold option on 1,000 ounces of gold, paying a premium of $10,000. If the price of gold is above $275 at the maturity (settlement) date, the counterparty will pay the entity 1,000 times the difference. If the price of gold is $275 or below at the maturity date, the contract expires worthless. The option cannot be exercised before its contractual maturity date. The entity designates the purchased option contract as a hedge of the variability in the purchase price (cash outflow) of the 1,000 ounces of gold for prices above $275 per ounce. The entity would reclassify the purchased option's gain or loss that is reported in accumulated other comprehensive income in earnings when the cost of the gold affects earnings (such as being included in cost of goods sold) and present that gain or loss in the same income statement line item as the earnings effect of the hedged item. ##### [815-30-55-128](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2be3b825c95b024d811cdf28de1747845debc8327232942e062892189aff8019 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5) in determining whether an entity should immediately reclassify into earnings the entire net gain or loss related to the derivative instrument in accumulated other comprehensive income when issuing debt at a date that is not the same as originally forecasted: 1. a Amounts are not reclassified immediately into earnings (Case A). 2. b Amounts are reclassified immediately into earnings (Case B). ##### [815-30-55-129](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-129) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2057339e4fcf9a9361d81dd2728bcda18679fdab1e2afe1763fde4248d0c1971 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 1. a Entity A expects to borrow $100 million over a 10-year period beginning in 6 months. 2. b Entity A initially plans to issue $100 million of 10-year fixed-rate debt at or near par at the then-current market interest rate. 3. c Entity A will be exposed to variability in cash flows for the future quarterly interest payments on the debt due to changes in credit risk and interest rate risk that occur during this six-month period before issuance. 4. d To hedge the risk of changes in these 40 quarterly interest payments attributable to changes in the benchmark interest rate for the 6-month period, Entity A does both of the following: 1. 1 Enters into a derivative instrument (for example, a forward-starting interest rate swap) 2. 2 Documents that it is hedging the variability in the 40 future quarterly interest payments, attributable to changes in the benchmark interest rate, over the next 10 years related to its 10-year $100 million borrowing program that begins in 6 months. 5. e Entity A documents that it will assess the effectiveness of the hedging relationship semimonthly on a quantitative basis. 6. f Six months after inception of the hedging relationship, Entity A decides to delay the issuance of the 10-year debt for 3 months. ##### [815-30-55-130](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:d45a5eb9528aac4f4f8f2f312e4ffd8e406cd69eb1fc617a7b8a9545feb38772 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When Entity A decides to delay the issuance of the 10-year debt for 3 months, Entity A should not immediately reclassify into earnings the entire net gain or loss in accumulated other comprehensive income related to the derivative instrument. Entity A's strategy is a cash flow hedge of 40 individual probable quarterly interest payments. A cash flow hedge of future interest payments is a hedge of a series of forecasted transactions; consequently, Entity A must first determine the likelihood of whether and when each forecasted transaction in the series will occur. If at any time during the hedging relationship Entity A determines that it is no longer probable that any of the forecasted transactions in the series will occur by the date (or within the time period) originally specified, it must terminate the original hedging relationship for each of those specific nonprobable forecasted transactions—even if the forecasted transaction will occur within an additional two-month period of time after that originally specified date. Entity A need not terminate the original hedging relationship for those specific forecasted transactions that remain probable of occurring by the date or within the time period originally specified. After the hedging relationship is terminated, Entity A must determine whether it is probable that any or all of those specific nonprobable forecasted transactions will not occur either by the date (or within the time period) originally specified or within an additional two-month period of time thereafter (see paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) ). Entity A should reclassify into earnings from accumulated other comprehensive income the amount of the net derivative instrument gain or loss related to those specific nonprobable forecasted transactions for which it is probable they will not occur. That amount should be equivalent to the present value of the derivative instrument's cash flows intended to offset the changes in the original forecasted transactions for which Entity A has determined it is probable that they will not occur by the date (or within the time period) originally specified or within an additional two-month period of time thereafter. ##### [815-30-55-131](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:f39ae2120b2edb272f48631bad3f486640db4e98f57966b229d938840b172817 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, when Entity A originally documented the hedging relationship, it was hedging 40 forecasted transactions (forecasted interest payments) that would begin in 6 months' time and continue over a 10-year period. Because Entity A did not issue the debt instrument as originally documented, Entity A would determine that it is probable that the first forecasted transaction will not occur at the time forecasted; consequently, Entity A must terminate the original hedging relationship with respect to that first forecasted transaction. However, Entity A would also determine that it is probable that the other 39 forecasted transactions will occur at the time forecasted. After the hedging relationship is terminated for the specific nonprobable first forecasted transaction, Entity A must determine whether it is probable that specific nonprobable first forecasted transaction will not occur by the forecasted date or within an additional two-month period of time thereafter. In this Case, Entity A determines that it is probable that the first hedged quarterly interest payment will not occur within two months of its specified date. The amount reclassified into earnings from accumulated other comprehensive income is the portion of the interest rate swap's net gain or loss equivalent to the present value of the cash flows from the interest rate swap intended to offset the changes in the first forecasted transaction that is probable not to occur. ##### [815-30-55-132](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:1371086be829965dcaa991c42a99f4ec44a2ac32cda66c97096ce2d9c693f97f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case has the following assumptions: 1. a Entity B expects to issue $100 million of 10-year, 9 percent debt in 6 months. 2. b Because the debt will have a fixed interest rate of 9 percent, Entity B will not be exposed to variability in the future quarterly interest payments at 9 percent, but it will be exposed to variability in the cash flows received as proceeds on the debt due to changes in credit risk and interest rate risk that occur during the 6-month period before issuance. 3. c To hedge the risk of changes in the total proceeds attributable to changes in the benchmark interest rate, Entity B does both of the following: 1. 1 Enters into a derivative instrument (for example, a short position in U.S. Treasury note futures contracts) 2. 2 Documents that it is hedging the variability in the cash proceeds attributable to changes in the benchmark interest rate to be received from the 9 percent fixed-rate debt it will issue in 6 months and that it will assess effectiveness on a quantitative basis. 4. d Because Entity B plans to issue $100 million of 10-year, 9 percent debt regardless of the then-current interest rate environment, the effect of increases or decreases in interest rates will be reflected in issuing the debt at a discount or a premium, respectively. 5. e Six months after inception of the hedging relationship, Entity B decides to delay the issuance of the debt for three months. ##### [815-30-55-133](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b6410b780c065b425ba481bf181c313bceca24fc2233eeb0d98d2b8e4d8151ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This strategy is a cash flow hedge of the variability in proceeds attributable to changes in the benchmark interest rate to be received from the issuance of debt in six months. A cash flow hedge of the proceeds attributable to changes in the benchmark interest rate is a hedge of a single forecasted transaction specified to occur in six months; consequently, when the single forecasted transaction is no longer probable of occurring by the date (or within the time period) originally specified, Entity B must terminate the hedging relationship. After the hedging relationship is terminated, Entity B must determine whether it is probable that the specific nonprobable forecasted transaction will not occur by the date (or within the time period) originally specified or within an additional two-month period of time thereafter. Because Entity B decided to delay the issuance of the debt for a three-month period of time, Entity B concludes that it is probable that the forecasted transaction will not occur by the date (or within the time period) originally specified or within an additional two-month period of time thereafter. Consequently, Entity B should immediately reclassify into earnings the entire net gain or loss related to the derivative instrument in accumulated other comprehensive income. Given the guidance in paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5), the nonoccurrence of the hedged forecasted transactions described in this Case could potentially jeopardize Entity B's ability to use cash flow hedge accounting in the future for the situation described. ##### [815-30-55-134](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-134) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:fb3248ff555070568522e84082855c5a79d00feccf61c5b963db2f795c099263 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic for assessing effectiveness for a cash flow hedge of a forecasted purchase of inventory with a forward contract for which the hedged risk is variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09."). Assume the entity elects to perform subsequent assessments of hedge effectiveness on a quantitative basis using a cumulative-dollar-offset approach and all hedge documentation requirements were satisfied at inception. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)
Editor's Note: Paragraph 815-30-55-134 will be amended upon transition, together with its heading:
• > Example 22: Assessing Effectiveness of a Cash Flow Hedge of a Forecasted Purchase of Inventory with a Forward Contract
This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic for assessing effectiveness for a cash flow hedge of a forecasted purchase of inventory with a forward contract for which the hedged risk is variability in cash flows attributable to changes in an explicitly referenced variable component of the purchase price of the inventory. Assume the entity elects to perform subsequent assessments of hedge effectiveness on a quantitative basis using a cumulative-dollar-offset approach and all hedge documentation requirements were satisfied at inception. ##### [815-30-55-135](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:d9fdf955ac41a57d083262b185580c7c3c04aa63ee8323a7707fb280ad610653 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J manufactures keys for door locks on buildings and cars. The keys are cut from sheets of metal called _key plates_. Entity J primarily purchases its key plates from Supplier 1 as needed. Supplier 1 and Entity J have an outstanding agreement specifying that the per-unit cost of each key plate will be determined by Supplier 1 on the first business day of each month on the basis of the following pricing formula: 1. a Spot price of COMEX Zinc per pound × 0.2 pounds, plus 2. b Spot price of COMEX Copper per pound × 0.1 pounds, plus 3. c The current cost of refining copper and zinc into key plates, plus 4. d The current cost of transporting the key plates to Entity J. ##### [815-30-55-136](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:4cfcd2ac4c885f8c20cbfeb73a255546b649bc5cb685b6d3b12814d7e6407117 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In January 20X1, Entity J expects to purchase 100,000 key plates in July 20X1, which requires 10,000 pounds of copper for the manufacturing process. Entity J decides that it wishes to hedge only the change in value of the price of COMEX Copper used to create the key plates being purchased in July 20X1. ##### [815-30-55-137](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:be381b0a09134e948a5f39abfc048ee153710667f20a15dfabd4ed9c6857d4af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 15, 20X1, Entity J enters into a forward contract maturing on July 1, 20X1 (that is, the date on which the price of copper used to manufacture the key plates is fixed) to purchase 10,000 pounds of COMEX Copper at $2.10 per pound. Any settlement amount on the forward contract will be based on the difference between the contract price of $2.10 per pound and the spot price of COMEX Copper on the maturity date (July 1, 20X1), multiplied by the notional amount of 10,000 pounds. ##### [815-30-55-138](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-138) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:d3cac1d91e1f64e1e66491f09c644de9ad7f47be41d27093347f63f3236b61b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J designates a cash flow hedge in which the hedging instrument is the forward contract, the hedged item is the forecasted purchase of key plates in July 20X1, and the hedged risk is the variability in the purchase price of the key plates attributable to changes in the COMEX Copper price index, which is a contractually specified component within the frame agreement. Entity J documents in its hedge documentation that the requirements to designate variability in cash flows attributable to changes in a contractually specified component as the hedged risk in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity J designates a cash flow hedge in which the hedging instrument is the forward contract, the hedged item is the forecasted purchase of key plates in July 20X1, and the hedged risk is the variability in the purchase price of the key plates attributable to changes in the COMEX Copper price index. Entity J determines that the COMEX Copper price index explicitly referenced in the agreement’s pricing formula is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to key plates and concludes that the conditions in paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) are met. ##### [815-30-55-139](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e0af27c0dc379a04f6ce90ec6abb43f656871c532e5adfec99c0420a35972dcc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J bases its assessment of hedge effectiveness on cumulative changes in the fair value of the hedging instrument and the hedged item attributable to changes in the hedged risk. ##### [815-30-55-140](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:a686ef3f6d2ccf28e3c7ff7508b5a94e84abd1233228f72be0269fd47cbb47a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing hedge effectiveness on an ongoing basis, Entity J must consider the extent of offset between the change in expected cash flows on the hedging instrument (the copper forward contract) and the hedged item attributable to changes in the hedged risk (change in expected cash flows associated with forecasted purchases of key plates attributable to changes in the COMEX Copper price index). The table below illustrates the cumulative changes in the hedging instrument and hedged item attributable to changes in the hedged risk as of the first subsequent quarterly effectiveness assessment date. - ![](https://asc.understandingaccounting.org/asc-img/GUID-B9448455-2AAE-4B54-A4C3-D913363831F3-low.gif) Estimate of Change in Cash Flows Hedging Instrument Hedged Item Due to Fluctuation in Hedged Risk Forward price of copper (dollars per pound) "At hedge inception (Jan 15, 20X1)" $2.10 $2.10 "At first subsequent assessment date (March 31, 20X1)" $2.25 $2.25 Change in forward price of copper $0.15 $0.15 "Cumulative change in copper (per pound) × 10,000 pounds of copper" " $1,500.00 " " $1,500.00 " ##### [815-30-55-141](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:27d0fdcc5f0bd8a2989a0ae922a61e57bff2a5861ccba1edd06cb1e6307b4e63 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J could assess effectiveness as of March 31, 20X1, by comparing the $1,500 change in the hedging instrument with the $1,500 change in the hedged item attributable to changes in the hedged risk because the hedging instrument's maturity date and the date on which the price of copper will be fixed match (that is, July 1, 20X1). ##### [815-30-55-142](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2497c58072d00de47de5677a7d1eb0b5210b51362c87ed54662598f184cef7eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in Subtopic 815-20 and this Subtopic to the designation of a [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") of a forecasted purchase of inventory in which the commodity exposure is managed centrally at the aggregate level. Assume the entity elects to perform subsequent assessments of hedge effectiveness on a qualitative basis and all hedge documentation requirements were satisfied at inception. ##### [815-30-55-143](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-143) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c8092dbe743ce90c046ecbddfaafbc9de132a52b09d9b425b5a3c12646a6cc03 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity Q is seeking to hedge the variability in cash flows associated with commodity price risk of its monthly plastic purchases for the next 12 months. It has two different manufacturing plant locations (Plant A and Plant B) that are purchasing five different grades of plastic from Supplier A. The plastic purchase price for each month is based on the month-end Joint Plastic (JP) index and a fixed basis differential component. The fixed basis differential offered by the supplier is determined by: 1. a The grade of the plastic purchased 2. b The distance between the plant location and supplier location. ##### [815-30-55-144](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-144) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:1ff410c3aee37dff38e0b3bbcfcdb62c6c563da58289421338709e84526bf988 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At January 1, 20X1, Entity Q enters into a supply agreement with Supplier A to purchase plastic over the next 12 months. The respective agreements allow Entity Q to purchase the various grades of plastic at both of its plant locations as the need arises over the following year. The following table summarizes the pricing provisions contained in the supply agreement for each grade of plastic. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A272DBE3-E3AF-4BBD-B794-655125045A44-low.gif) Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Plant A JP + $0.14 JP + $0.11 JP + $0.09 JP + $0.05 JP - $0.02 Plant B JP + $0.16 JP + $0.12 JP + $0.07 JP + $0.06 JP - $0.03 ##### [815-30-55-145](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-145) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:8631f661de5c54c03bd55261a82538ece6ba584f267f337b39120808a456eaeb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity Q's risk management objective is to hedge the variability in the purchase price of plastic attributable to changes in the JP index of the first 80,000 pounds of plastic purchased in each month regardless of grade or plant location delivered to. To accomplish this objective, Entity Q executes 12 separate forward contracts at January 1, 20X1, to purchase plastic as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4AE91D45-9805-4170-A17E-038C151DC086-low.gif) Settlement Date Notional Amount Underlying Index Jan forward "January 30, 20X1" "80,000 (lbs)" JP Feb forward "February 28, 20X1" "80,000 (lbs)" JP Mar forward "March 30, 20X1" "80,000 (lbs)" JP April forward "April 30, 20X1" "80,000 (lbs)" JP May forward "May 30, 20X1" "80,000 (lbs)" JP June forward "June 30, 20X1" "80,000 (lbs)" JP July forward "July 30, 20X1" "80,000 (lbs)" JP Aug forward "August 30, 20X1" "80,000 (lbs)" JP Sep forward "September 30, 20X1" "80,000 (lbs)" JP Oct forward "October 30, 20X1" "80,000 (lbs)" JP Nov forward "November 30, 20X1" "80,000 (lbs)" JP Dec forward "December 30, 20X1" "80,000 (lbs)" JP ##### [815-30-55-146](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-146) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2e09acdd9c8f9c3665ae8bdde5e58cb98ad473761939dd485c15077dfa2c177a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity Q determines that the variable JP index referenced in the supply agreement constitutes a contractually specified component and that the requirements to designate variability in the cash flows attributable to changes in a contractually specified component as the hedged risk in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity Q designates the variability in cash flows attributable to changes in the JP index component as the hedged risk. Entity Q determines that the JP index explicitly referenced in the supply agreement is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to plastic and concludes that the conditions in paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) are met. ##### [815-30-55-147](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-147) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b9f4d04b24bb4d09cbafe8acbf1e97fece22ac6859e04bef8ba7c14ee9101529 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because Entity Q determined that it will purchase at least 80,000 pounds of plastic each month in the coming 12 months to fulfill its expected manufacturing requirements, it documents that the hedged item (that is, the [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") within each month) is probable of occurring. Entity Q designates each forward contract as a cash flow hedge of the variability in cash flows attributable to changes in the contractually specified JP index on the first 80,000 pounds of plastic purchased (regardless of grade or plant location delivered to) for the appropriate month. The individual purchases of differing grades of plastic by Plant A and Plant B during each month share the risk exposure to the variability in the purchase price of the plastic attributable to changes in the contractually specified JP index. Therefore, the individual transactions in the hedged portfolio of plastic purchases for each month share the same risk exposure for which they are designated as being hedged in accordance with paragraph [815-20-25-15(a)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15). Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Because Entity Q determined that it will purchase at least 80,000 pounds of plastic each month in the coming 12 months to fulfill its expected manufacturing requirements, it documents that the hedged item (that is, the [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") within each month) is probable of occurring. Entity Q designates each forward contract as a cash flow hedge of the variability in cash flows attributable to changes in the explicitly referenced JP index on the first 80,000 pounds of plastic purchased (regardless of grade or plant location delivered to) for the appropriate month. ##### [815-30-55-148](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-148) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:aa35c0d81698d86532c2e8884b883fd44928c57de49efc0724fd91d122dd3b10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [815-20-25-3(b)(2)(iv)(01)(B)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), if Entity Q has determined the critical terms of the hedged item and hedging instrument match, it may elect to assess effectiveness qualitatively both at inception of the hedging relationship and on an ongoing basis on the basis of the following factors in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) : 1. a The hedging instrument's underlying matches the index upon which plastic purchases will be determined (that is, the JP Index). 2. b The notional of the hedging instrument matches the forecasted quantity designated as the hedged item. 3. c The date on which the derivatives mature matches the timing in which the forecasted purchases are expected to be made. That is, the quantity of the hedged item, 80,000 pounds, is an aggregate amount expected to be purchased over the course of the respective month (that is, the same 31-day period) in which the derivative matures. 4. d Each hedging instrument was traded with at-market terms (that is, it has an initial fair value of zero). 5. e Assessment of effectiveness will be performed on the basis of the total change in the fair value of the hedging instrument. 6. f Although the amount of plastic being hedged each period is a cumulative amount across multiple grades of plastic, the basis differentials between grades of plastic and location are not required to be included in assessments of effectiveness because Entity Q has designated the variability in cash flows attributable to changes in the JP index (the contractually specified component) as the hedged risk within its purchases of plastics. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In accordance with paragraph [815-20-25-3(b)(2)(iv)(01)(B)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), if Entity Q has determined that the critical terms of the hedged item and hedging instrument match, it may elect to assess effectiveness qualitatively both at inception of the hedging relationship and on an ongoing basis on the basis of the following factors in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) : 1. a The hedging instrument's underlying matches the index upon which plastic purchases will be determined (that is, the JP index). 2. b The notional of the hedging instrument matches the forecasted quantity designated as the hedged item. 3. c The date on which the derivatives mature matches the timing in which the forecasted purchases are expected to be made. That is, the quantity of the hedged item (80,000 pounds) is an aggregate amount expected to be purchased over the course of the respective month (that is, the same 31-day period) in which the derivative matures. 4. d Each hedging instrument was traded with at-market terms (that is, it has an initial fair value of zero). 5. e Assessment of effectiveness will be performed on the basis of the total change in the fair value of the hedging instrument. 6. f Although the amount of plastic being hedged each period is a cumulative amount across multiple grades of plastic, the basis differentials between grades of plastic and location are not required to be included in assessments of effectiveness because Entity Q has designated the variability in cash flows attributable to changes in the JP index (the explicitly referenced variable component of the forecasted purchase price) as the hedged risk. In accordance with paragraph [815-20-55-23B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23B), if Entity Q assesses hedge effectiveness in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) and applies the similar risk assessment method described in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A), it also may assume that the hedged risks related to the group of forecasted transactions are similar. ##### [815-30-55-149](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-149) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:fd08ef470465dfa7c4af9860c0b84609092f4a563dfb11d2219aabec688468d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)This Example illustrates the application of the guidance in paragraphs [815-20-25-15(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) and [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) to determine whether a price component is eligible to be designated as the hedged risk in a forecasted purchase of nonfinancial assets in which the associated forward contracts are accounted for as derivatives because physical settlement is not probable of occurring but it is probable that any shortfall will be purchased in the spot market. On January 1, 20X1, Entity R enters into forward contracts with multiple suppliers to purchase an aggregate 1,000 bushels of soybeans for delivery in June 20X1 to use in its operations. Each contract stipulates that the purchase price per bushel is equal to the ABC soybean index price (June maturity) plus a variable basis differential representing transportation costs. Furthermore, each contract permits net settlement of the contract if the quality of the soybeans delivered does not meet Entity R’s specifications. If that happens, Entity R will net settle the affected forward contracts and purchase soybeans of the appropriate specifications in the spot market to make up for any shortfall. Given a history of suppliers not delivering soybeans meeting the required specifications, Entity R cannot assert that any specific forward contract will be physically settled and, therefore, determines that the forward contracts do not qualify for the normal purchases and normal sales scope exception. ##### [815-30-55-150](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-150) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:61b5b39eb2881e2ac04b8aa26ae93ca4009efe4d8b8a45a9ebbd4453af75e895 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On January 1, 20X1, Entity R enters into a futures contract to fix the price of 1,000 bushels of ABC soybeans in accordance with its risk management objective. Entity R designates this futures contract as a hedge of the variability in cash flows attributable to changes in the ABC soybean index (a component of the price of soybeans) related to the first 1,000 bushels of soybeans forecasted to be purchased in June 20X1. The forecasted purchases include ABC soybeans purchased from suppliers in accordance with forward contracts and ABC soybeans purchased in the spot market. ##### [815-30-55-151](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-151) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:e2ff04244e024e36f69a019e99e1654c2ce793dcc11b382263dd1fc72e31d5c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity R determines that the ABC soybean index is an eligible hedged risk for the forecasted purchase of 1,000 bushels of ABC soybeans for delivery in June 20X1 either in the spot market or in accordance with the supplier contracts. To reach that conclusion, Entity R performs two distinct assessments. In accordance with paragraph [815-20-25-22C(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C), Entity R determines that the ABC soybean index (that is, the hedged variable component) is clearly and closely related to the nonfinancial asset being purchased (that is, ABC soybeans in the pertinent spot market). In accordance with paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C), Entity R determines that the ABC soybean index (that is, the hedged variable component) is explicitly referenced in the pricing formula of the supplier contracts and that the ABC soybean index is clearly and closely related to ABC soybeans purchased in accordance with the supplier contracts. Although Entity R is unable to assert that forward contracts with suppliers are probable of physical settlement, Entity R can assert that the forecasted transactions are probable of occurring through a combination of physically settled forward contracts and spot market transactions. ##### [815-30-55-152](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-152) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:f3cc307dc42ffaa2d7dc327c48c897d95920c5f5fbdb20cda4eaa3c42c985852 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)This Example illustrates the application of the guidance in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) to determine whether a subcomponent of a component that is explicitly referenced in an agreement can be designated as the hedged risk in a cash flow hedge of a forecasted purchase of a nonfinancial asset. ##### [815-30-55-153](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-153) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:6fefe2d5cf8626453f96f52a5e467d239aa7e213b47c8872dcfbba1642163fda Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity X is a manufacturing company that uses copper wire (that is, copper that has been drawn down to size and processed for manufacturing purposes) in the normal course of business. On January 1, 20X1, Entity X enters into a supply agreement to purchase 1,000 pounds of copper wire for its manufacturing operations in each of the next 12 months. The supply agreement stipulates that the monthly purchase price per pound is equal to the ABC Copper Wire index price (maturing in month of delivery), plus other basis differentials. Entity X determines that the supply agreement meets the definition of a derivative in Topic 815. ##### [815-30-55-154](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-154) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b21f17f86d411e25b86436da7325e66c30b41c7c63bcf18ce418e566d643388d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity X is seeking to reduce its commodity price exposure to the forecasted purchase of 1,000 pounds of copper wire in each of the next 12 months. Derivatives referencing the ABC Copper Wire index are less liquid than derivatives referencing the core underlying ingredient in copper wire, which is raw copper. Entity X determines that the market for the ABC Copper Wire index is based on the price of raw copper plus processing costs, that it takes one pound of raw copper to produce one pound of copper wire, and that raw copper prices are based on COMEX Copper futures. Therefore, on January 1, 20X1, Entity X executes 12 futures contracts, each having a 1,000-pound notional amount tied to the COMEX Copper index futures price (maturing in successive months). Those derivatives are designated as hedging the risk of cash flow variability attributable to the COMEX Copper index (a subcomponent of the explicitly referenced ABC Copper Wire index) related to its forecasted purchase of the first 1,000 pounds of copper wire per month. ##### [815-30-55-155](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-155) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:acb2633114ac4eaf59de243dfb8d957fa3b2c2ce432aa0c79d6b46c04117d787 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity X applies the normal purchases and normal sales scope exception in accordance with Subtopic 815-10 to the contract to purchase copper wire. Therefore, Entity X determines that the condition in paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) is met and the ABC Copper Wire index (the explicitly referenced component in the forward contract) is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the forecasted transaction in accordance with paragraph [815-20-55-18D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18D). In addition, Entity X determines that the COMEX Copper index is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the explicitly referenced ABC Copper Wire index. Thus, Entity X determines that the COMEX Copper index is an eligible risk subcomponent in accordance with paragraph [815-20-25-22C(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). ##### [815-30-55-156](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-156) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:8a0f93ad924f705a5b07b24f5b95cfe2fdce4558cae0b14969f38e942e3f0614 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)This Example illustrates the application of the guidance in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) to determine whether a price component in a forecasted purchase of a nonfinancial asset in the spot market is eligible to be designated as the hedged risk. ##### [815-30-55-157](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-157) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:0f54a3019b76371852967491e8f6dec78bd61e0823fcd75ef05eb14df1385211 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On December 31, 20X0, Entity C forecasts that it will purchase at least 20,000 MMBtus of natural gas in the spot market for production purposes in June 20X1. On January 1, 20X1, Entity C enters into a futures contract to fix the price of 20,000 MMBtus of natural gas that is tied to the XYZ National NatGas index (June 20X1 maturity) in accordance with its risk management objective. Entity C designates the futures contract as the hedging instrument in a cash flow hedge of the variability in cash flows attributable to the XYZ National NatGas index component related to its forecasted purchase of the first 20,000 MMBtus of natural gas in the spot market in June 20X1. ##### [815-30-55-158](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-158) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:980bf2a095ab7c7979e8c759defbf521d827005841a4ba1da57c73be6de88c6f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity C concludes that agreements to purchase natural gas in this region are frequently priced using one of the following formulas: 1. a ABC Regional NatGas index price + Fixed Spread 2. b XYZ National NatGas index price + Cost to Transport + Fixed Spread. Purchases of natural gas in this region are often tied to the ABC Regional NatGas index because it reflects the natural gas prices of the closest geographical proximity to an entity. Additionally, the XYZ National NatGas index is a nationally recognized index that is commonly used by market participants to price contracts throughout the country, adjusted for the cost to transport that natural gas to various hubs for sale. Entity C reasonably determines that the ABC Regional NatGas index and the XYZ National NatGas index are not extraneous to changes in the fair value of natural gas in the region of the transaction. ##### [815-30-55-159](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-159) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:ad3bbfc46d4e5e01393303de3cdc36a29d70b92994129753b4a37bd173ac567f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity C determines that the XYZ National NatGas index component is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the forecasted purchase of natural gas in the spot market in accordance with paragraph [815-20-25-22C(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). Because the price of natural gas being purchased by Entity C is not set forth in an agreement, the guidance in paragraph [815-20-25-22C(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) would not apply. If Entity C had chosen to designate the ABC Regional NatGas index as the hedged risk and determined that this index was clearly and closely related to the forecasted purchase of natural gas in the spot market, that also would be permissible under paragraph [815-20-25-22C(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). ##### [815-30-55-160](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-160) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:cd5274faf3c4dc6dc460bd2e582b9e487e3a14b24aeeacedbf248c64aa83e0ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)This Example illustrates the application of the guidance in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) to determine whether multiple price components are eligible to be designated as the hedged risks in a group of forecasted purchases of nonfinancial assets when uncertainty exists about which component or components will be explicitly referenced in the pricing formulas of not-yet-existing contracts. ##### [815-30-55-161](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-161) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:62189e6067a557e68d304987f5c6d26e363b7acc85c8fe0d29925ab2349ef72b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity Y’s objective is to hedge the variability in cash flows attributable to changes in the explicitly referenced component or components in not-yet-existing agreements to purchase 1,000 bushels of soybeans. On January 1, 20X1, Entity Y begins negotiations with multiple vendors to purchase 1,000 bushels of soybeans on June 30, 20X2. As of April 1, 20X1, the counterparties have not agreed on whether the pricing formula of the agreements will price the soybeans on the basis of the ABC Soybean index or the DEF Soybean index. Entity Y concludes that it is probable that 1,000 bushels of soybeans will be purchased and that the pricing formula in the agreements will reference any combination of the ABC Soybean index and the DEF Soybean index. ##### [815-30-55-162](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-162) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:9f57a1d304d42cee21e3c3fc6a8c85aa667056fcf49e1ac6dd9824035b749241 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On April 1, 20X1, Entity Y enters into a futures contract for 1,000 bushels of ABC Soybeans maturing on June 30, 20X2. Entity Y designates that futures contract as a hedge of cash flow variability attributable to the designated hedged risk for the forecasted purchase of the first 1,000 bushels of soybeans purchased under agreements with a pricing formula that references any combination of the ABC Soybean index and the DEF Soybean index on June 30, 20X2. Because of the uncertainty of whether the not-yet-existing agreements’ pricing formulas will reference the ABC Soybean index or the DEF Soybean index, Entity Y designates both indexes as the hedged risks in the cash flow hedge. ##### [815-30-55-163](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-163) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:14adec0db29e4edb5514f20658fc34c29a2212a1ccefdfa424bbc3f6a6c86a27 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)At hedge inception, Entity Y expects that the forecasted transactions will have multiple risks occurring at the same time (that is, the purchase agreements will reference a combination of the ABC Soybean index and the DEF Soybean index), but Entity Y is uncertain what combination of the ABC Soybean index and the DEF Soybean index will be explicitly referenced in the pricing formulas in the agreements. Entity Y determines that both the ABC Soybean index and the DEF Soybean index will be eligible components for designation in accordance with paragraph [815-20-25-22C(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) upon execution of the purchase agreements. Entity Y elects to assess whether the hedged risks in the group of individual forecasted transactions have similar risk exposure by assessing whether the designated hedging instrument is highly effective in achieving offsetting changes in cash flows attributable to each hedged risk in the group, on an individual basis, in accordance with paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). That is, Entity Y assesses and determines that the hedging instrument is highly effective against both designated risks (ABC and DEF Soybean indexes) in the group. Entity Y uses that assessment as a “dual purpose” test to support that the forecasted transactions in the group are similar and that the hedging instrument is highly effective at achieving offsetting cash flows of the forecasted transactions, regardless of whether the ABC Soybean index or the DEF Soybean index is ultimately referenced in the not-yet-existing agreements’ pricing formulas. ##### [815-30-55-164](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-164) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:389a4f18aa2118d475c8fcce79c0d8e48034326aab4798f686c41a68c3b88d71 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On June 30, 20X1, Entity Y enters into forward contracts with multiple vendors. Each agreement includes a pricing formula referencing either the ABC Soybean index or the DEF Soybean index, with a June 30, 20X2 delivery date. The hedging relationship continues to be eligible for hedge accounting in accordance with paragraph [815-20-25-22C(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). Entity Y determines that the designated hedged risks (ABC and DEF Soybean indexes) in the group are similar because the hedging instrument is highly effective against both risks in the group in accordance with paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). Therefore, Entity Y concludes that the relationship continues to be eligible for hedge accounting. ##### [815-30-55-165](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-165) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:544e6af1fbe9cc6bedfb6380a9ce887fbaf2db2485bec192e4b27fe642755c52 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)This Example illustrates the application of the guidance in paragraphs [815-30-35-37B through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) in which the designated hedged risk is the variability in cash flows attributable to changes in the contractually specified interest rate on a choose-your-rate debt instrument that is: 1. a Yet to be issued 2. b Issued and outstanding 3. c Replaced during the hedge period. ##### [815-30-55-166](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-166) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c6583988c3306948a90ebeb2f23e3fbffb2ddfaed5fa86e68a462ae4ce75a25a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On January 1, 20X1, Entity A determines that it is probable it will enter into a choose-your-rate debt arrangement with a bank for a 5-year, $20 million variable-rate note payable to be issued on April 1, 20X1, with the principal due at maturity. On January 1, 20X1, Entity A determines that the interest rate indexes and interest rate tenors included in choose-your-rate debt being offered in the market are as follows: 1. a 1-Month Term SOFR (paid every 30 days) 2. b 3-Month Term SOFR (paid every 90 days) 3. c 6-Month Term SOFR (paid every 6 months) 4. d 1-Month U.S. Treasury Rate (paid every 30 days) 5. e Prime (paid every 30 days). ##### [815-30-55-167](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-167) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:bad17e42999940731d1756be3219b3335980a51b4bbb3935a61bb51cf213741e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity A seeks to hedge the cash flow variability attributable to changes in the contractually specified interest rate on this choose-your-rate debt instrument. Accordingly, on January 1, 20X1, Entity A enters into a forward-starting receive-variable, pay-fixed, 5-year, $20 million notional interest rate swap that requires settlement and resets every 30 days beginning after April 1, 20X1. Under the terms of the swap, Entity A receives variable payments every 30 days beginning after April 1, 20X1, based on the average of Daily SOFR over the past 30 days (that is, the variable-rate interest payments are indexed to 30-Day Average SOFR, in arrears) and pays a fixed rate of 5 percent. On January 1, 20X1, the fair value of the interest rate swap is zero. ##### [815-30-55-168](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-168) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:702ad51212573793fd050a5b7c379013e0534a47f1591c9a3fc9cc73b8df8522 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On January 1, 20X1, Entity A designates the swap as hedging the variability in cash flows attributable to changes in the contractually specified interest rate on the 5-year, $20 million notional choose-your-rate debt instrument forecasted to begin accruing interest on April 1, 20X1, and any related replacement debt, in accordance with paragraph [815-30-35-37B](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B). On January 1, 20X1, Entity A documents the interest rate indexes and interest rate tenors included in choose-your-rate debt being offered in the market (that is, those interest rate indexes and interest rate tenors included in paragraph [815-30-55-166(a) through (e)](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-166)) in accordance with paragraph [815-30-35-37D](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37D). Only interest rate indexes and interest rate tenors are required to be documented in accordance with paragraph [815-30-35-37D](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37D) (that is, payment conventions included in paragraph [815-30-55-166(a) through (e)](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-166) are included only for illustrative purposes and do not depict an incremental documentation requirement). Entity A determines that it is probable that it will issue choose-your-rate debt and initially select one of those interest rate indexes and interest rate tenors when the choose-your-rate debt is issued on April 1, 20X1. ##### [815-30-55-169](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-169) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:df6d03455d4b1374346b8741ede10b510ea09f83b6eb065eb606358e5fa9258f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity A’s best estimate of the interest rate index and interest rate tenor that it will initially select for the first interest period when the choose-your-rate debt is issued is 1-Month Term SOFR. In accordance with paragraph [815-30-35-37C](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37C), Entity A designates that interest rate index and interest rate tenor as its contractually specified interest rate. Entity A performs an initial quantitative hedge effectiveness assessment on January 1, 20X1, based on this best estimate (that is, 60 monthly interest payments that begin to accrue on April 1, 20X1, based on 1-Month Term SOFR, with the rate resetting immediately following each payment due date) and concludes that the relationship is highly effective. In accordance with paragraph [815-20-25-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79B), this effectiveness assessment does not consider the optionality expected to be embedded within the choose-your-rate debt instrument. That is, the terms used to estimate changes in the hedged forecasted cash flows for purposes of the hedge effectiveness assessment only consider Entity A’s best estimate of the interest rate index and interest rate tenor that it will select for the first interest period when the choose-your-rate debt is issued, which is 1-Month Term SOFR. ##### [815-30-55-170](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-170) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c280eb3239a8006a2b73eb3e68b6b6b27fcc0c7386ba97df5755112e37aa583c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On April 1, 20X1, the note payable is issued. The note payable allows Entity A to pay interest at any of the following variable interest rates based on the rate that the entity selects at each reset date: 1. a 1-Month Term SOFR (paid every 30 days) 2. b 3-Month Term SOFR (paid every 90 days) 3. c 6-Month Term SOFR (paid every 6 months) 4. d 1-Month U.S. Treasury Rate (paid every 30 days) 5. e Prime (paid every 30 days) 6. f Effective Federal Funds Rate (paid every 30 days). Entity A chooses to pay interest based on 1-Month Term SOFR with the rate resetting immediately following each payment due date. If Entity A had determined that it was probable that Entity A would issue fixed-rate or single variable-rate debt or choose to pay interest at the Effective Federal Funds Rate (an interest rate that was not documented at hedge inception) for the first interest period, the entity would have discontinued applying hedge accounting and immediately reclassified the gain or loss on the interest rate swap reported in accumulated other comprehensive income into earnings in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). Entity A also would have considered whether it had demonstrated a pattern of determining that hedged forecasted transactions are probable of not occurring and the propriety of using hedge accounting in the future for similar forecasted transactions in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). ##### [815-30-55-171](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-171) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:b48e287aaa5b4cde71c17864968bdb92d5e6b03ae9fac28cb1ce2a2b0ab2b184 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)In accordance with paragraphs [815-30-35-37H through 35-37J](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37H) , after the choose-your-rate debt is issued and Entity A chooses the first interest rate index and interest rate tenor upon which interest will accrue, the list of interest rates and interest rate tenors documented at hedge inception is replaced by the list of interest rates and interest rate tenors included in the issued choose-your-rate debt agreement for the purposes of determining whether hedge accounting can continue. After Entity A chooses the first interest rate index and interest rate tenor upon which interest will accrue, it updates its hedge documentation in accordance with paragraph [815-30-35-37J](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37J) to indicate that it will choose to designate the contractually specified interest rate index and interest rate tenor as any interest rate index and interest rate tenor selected in the issued choose-your-rate debt, which would include the Effective Federal Funds Rate. In the future, if Entity A selects an alternative interest rate index or interest rate tenor on the choose-your-rate debt instrument, the designated contractually specified interest rate would be the interest rate index and interest rate tenor selected at that time. Similarly, if Entity A replaces the choose-your-rate debt instrument with a debt instrument for which the interest rate index and interest rate tenor match one of the interest rate index and interest rate tenor options included in the originally issued choose-your-rate debt instrument, interest payments on the replacement debt would continue to be considered the designated forecasted transactions. ##### [815-30-55-172](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-172) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c20692b4a3d2d6d859f8a0a6eb366025a8bd9ecc6c49dc6267be265335cc84cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)After the choose-your-rate debt is issued on April 1, 20X1, Entity A performs a prospective and retrospective hedge effectiveness assessment based on the then-selected interest rate index and interest rate tenor of the debt instrument. In accordance with paragraph [815-20-25-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79B), this effectiveness assessment does not consider the optionality embedded within the choose-your-rate debt instrument. That is, the terms used to estimate changes in the hedged forecasted cash flows for purposes of the hedge effectiveness assessment only consider the currently selected interest rate index and interest rate tenor of 1-Month Term SOFR. ##### [815-30-55-173](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-173) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:8c923a33ee6e23020807d7cb64237e31feeac2e3f543d0e654e874e02c308038 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Subsequent elections to change the interest rate index and interest rate tenor on the choose-your-rate debt instrument or replacement debt instrument may affect ongoing hedge accounting for this relationship. Consider the following scenarios, each occurring on April 1, 20X4: 1. a Entity A changes the variable interest rate on the choose-your-rate debt instrument to 3-Month Term SOFR, payable every 90 days, with the rate resetting immediately following each payment (Scenario A). 2. b Entity A changes the variable interest rate on the choose-your-rate debt instrument to Prime, payable every 30 days, with the rate resetting immediately following each payment (Scenario B). 3. c Entity A replaces the choose-your-rate debt instrument with a 1-year, $30 million 3-Month Term SOFR note, payable every 90 days, with the rate resetting immediately following each payment, with the principal due at maturity (Scenario C). 4. d Entity A replaces the choose-your-rate debt instrument with a 2-year, $20 million 12-Month Term SOFR note, payable annually, with the rate resetting immediately following each payment, with the principal due at maturity (Scenario D). ##### [815-30-55-174](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-174) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:c220c145774c8b5202f6f1594a7071bfe7d51cd919b9139fa83fac61ad566fd5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On April 1, 20X4, Entity A elects to make future interest payments on the existing choose-your-rate debt instrument based on 3-Month Term SOFR. Consistent with Entity A’s hedge documentation, this election automatically changes the contractually specified interest rate in the hedging relationship from 1-Month Term SOFR to 3-Month Term SOFR. The resulting change in the number and frequency of hedged interest payments in the hedging relationship does not result in a mandatory hedge dedesignation or require that Entity A consider the guidance in paragraphs [815-30-40-4 through 40-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) . ##### [815-30-55-175](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-175) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:d80e792c705fb095f81ecc8249aeac449f5f68a9464ee45206fd690d57723454 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity A performs a final retrospective assessment of hedge effectiveness on the basis of changes in cash flows on 1-Month Term SOFR interest payments (payable every 30 days), assuming that the contractually specified interest rate will not change, and determines that the hedging relationship was highly effective through April 1, 20X4. Entity A then performs a prospective assessment of hedge effectiveness on the basis of changes in cash flows on 3-Month Term SOFR interest payments (payable every 90 days). When assessing hedge effectiveness with the new risk, Entity A creates the terms of the instrument used to estimate the changes in the cash flows of the 3-Month Term SOFR interest payments on the basis of market data as of January 1, 20X1, as required by paragraphs [815-30-35-37L through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37L) . In performing this assessment, Entity A assumes that 3-Month Term SOFR was and will continue to be the contractually specified interest rate designated in the hedging relationship. Entity A determines that the revised hedging relationship is expected to continue to be highly effective at achieving offsetting cash flows attributable to 3-Month Term SOFR on a prospective basis and continues to apply hedge accounting. ##### [815-30-55-176](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-176) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:ec3248c464b0f9346079e1309399f668f1296705bba3519fce745df778cee280 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On April 1, 20X4, Entity A elects to make future interest payments on the existing choose-your-rate debt instrument based on Prime, payable every 30 days, with the rate resetting immediately following each payment. Consistent with Entity A’s hedge documentation, this election automatically changes the contractually specified interest rate in the hedging relationship from 1-Month Term SOFR to Prime (30-day reset). ##### [815-30-55-177](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-177) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:9ed4699240c593c1e5578067fb0a0342488ca2965196f7351d870931c88d19c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity A performs a final retrospective assessment of hedge effectiveness on the basis of changes in cash flows on 1-Month Term SOFR interest payments (payable every 30 days), assuming that the contractually specified interest rate will not change, and determines that the hedging relationship was highly effective through April 1, 20X4. Entity A then performs a prospective assessment of hedge effectiveness on the basis of changes in cash flows on Prime interest payments (payable every 30 days). When assessing hedge effectiveness with the new risk, Entity A creates the terms of the instrument used to estimate the changes in the cash flows of the Prime interest payments on the basis of market data as of January 1, 20X1, as required by paragraphs [815-30-35-37L through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37L) . In performing this assessment, Entity A assumes that 30-day Prime was and will continue to be the contractually specified interest rate in the hedging relationship. Entity A determines that the revised hedging relationship is not expected to be highly effective at achieving offsetting cash flows attributable to 30-day Prime on a prospective basis. As a result, Entity A discontinues hedge accounting but continues to report the previously recognized derivative gain or loss on the hedging instrument in accumulated other comprehensive income until the forecasted interest payments affect earnings or it is probable that the forecasted interest payments will not occur. ##### [815-30-55-178](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-178) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:2c998cc01f3290ff0924b45f6b5f788786c94bf1d04b3647f4347e9d5879839b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On April 1, 20X4, Entity A replaces the choose-your-rate debt instrument with a 1-year, $30 million 3-Month Term SOFR note, payable every 90 days. The replacement debt instrument does not need to be choose-your-rate debt in order for interest payments on the replacement debt to continue to be considered the forecasted transactions designated at hedge inception. That is, the replacement debt may have a single contractual variable rate or a list of possible contractual interest rate indexes and interest rate tenors from which the borrower may select. In either circumstance, if the interest rate index and interest rate tenor at which the replacement debt instrument is accruing interest match one of the interest rate index and interest rate tenor options included in the original choose-your-rate debt instrument, interest payments on the replacement debt will continue to be considered the designated forecasted transactions. However, if the replacement debt is fixed-rate debt or includes interest rate indexes or interest rate tenors not included in the terms of the original debt instrument and Entity A selects one of those interest rate indexes or interest rate tenors, the interest payments should not be considered the designated forecasted transactions. Once that instance becomes probable, the entity should discontinue applying hedge accounting and immediately reclassify the gain or loss on the hedging instrument recognized in accumulated other comprehensive income into earnings in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). The entity also should consider whether it has demonstrated a pattern of determining that hedged forecasted transactions are probable of not occurring and the propriety of using hedge accounting in the future for similar forecasted transactions in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). ##### [815-30-55-179](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-179) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:79c00b5718fc63e2e372d935b33891447564df033cf61d6d907251df46c5ff4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Although the replacement debt matures before the end of the hedge period (that is, the replacement debt matures March 31, 20X5, while the hedge period ends March 31, 20X6), Entity A determines that it is probable that it will issue eligible replacement debt for the remaining hedge period. Accordingly, while the currently outstanding replacement debt matures before the end of the hedge period, Entity A may continue to apply hedge accounting because it is probable that replacement debt will accrue interest payments over the remainder of the hedge period at one of the interest rate indexes and interest rate tenors included in the terms of the original choose-your-rate debt instrument. In addition, the forecasted interest payments on the outstanding replacement debt instrument should be considered the forecasted transactions in accordance with paragraph [815-30-35-37K](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37K) because the interest rate specified in the outstanding replacement debt (3-Month Term SOFR) was an interest rate index and interest rate tenor option included in the original choose-your-rate debt instrument. The fact that the principal of the outstanding replacement debt exceeds the principal hedged does not result in interest payments on the replacement debt instrument being ineligible to be hedged. Consistent with Entity A’s hedge documentation, replacing the hedged debt instrument automatically changes the contractually specified interest rate designated in the hedging relationship from 1-Month Term SOFR to 3-Month Term SOFR. ##### [815-30-55-180](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-180) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:828564e4fdd3d8182c3bad3acaf330f2ca90bac00b249c048aea50fdcb684c9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Entity A performs a final retrospective assessment of hedge effectiveness on the basis of changes in cash flows on 1-Month Term SOFR interest payments (payable every 30 days), assuming that the contractually specified interest rate will not change, and determines that the hedging relationship was highly effective through April 1, 20X4. Entity A then performs a prospective assessment of hedge effectiveness on the basis of changes in cash flows on 3-Month Term SOFR interest payments (payable every 90 days). When assessing hedge effectiveness with the new risk, Entity A creates the terms of the instrument used to estimate the changes in the cash flows of the 3-Month Term SOFR interest payments on the basis of market data as of January 1, 20X1, as required by paragraphs [815-30-35-37L through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37L) . In performing this assessment, Entity A assumes that 3-Month Term SOFR was and will continue to be the contractually specified interest rate designated in the hedging relationship. Entity A determines that the revised hedging relationship is expected to continue to be highly effective at achieving offsetting cash flows attributable to 3-Month Term SOFR on a prospective basis and continues to apply hedge accounting. ##### [815-30-55-181](https://asc.understandingaccounting.org/asc/815/30/#815-30-55-181) Pending content: yes Source downloaded (UTC): 2026-09-10T01:38:04.280Z to 2026-09-10T01:38:04.280Z Record version: sha256:4fcb681da3d5f4224b31cb75cca73e317b4e8591531a585997bb51d31dfca6c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)On April 1, 20X4, Entity A replaces the choose-your-rate debt instrument with a 2-year, $20 million 12-Month Term SOFR note, payable every 360 days. Because 12-Month Term SOFR was not listed as one of the interest rate index and interest rate tenor options included in the original choose-your-rate debt instrument, interest payments on this 12-Month Term SOFR note are not eligible to be designated as hedged forecasted transactions. Once it becomes probable that the choose-your-rate debt instrument will be replaced with a 2-year, $20 million 12-Month Term SOFR note that is payable every 360 days, Entity A must immediately reclassify amounts previously recognized in accumulated other comprehensive income into earnings in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). Entity A also should consider whether it has demonstrated a pattern of determining that hedged forecasted transactions are probable of not occurring and the propriety of using hedge accounting in the future for similar forecasted transactions in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5). Source downloaded (UTC): 2026-09-10T01:38:12.078Z to 2026-09-10T01:38:12.078Z Record version: sha256:813756b8e5b66dd978365e5bff8ea92843a7564b830941b373315353fd25736a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-S00: SEC 00 Status [Read section](https://asc.understandingaccounting.org/asc/815/30/#sec-00-status) SEC content: yes ##### [815-30-S00-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-S00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:12.078Z to 2026-09-10T01:38:12.078Z Record version: sha256:0ea6fe28db0f3eebe6f43462e32e55d7679d03c03c60b7afa9cfa1936e741abc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
815-30-S45-1SupersededAccounting Standards Update No. 2010-0401/15/2010
Source downloaded (UTC): 2026-09-10T01:38:16.160Z to 2026-09-10T01:38:16.160Z Record version: sha256:81988c14bc9f43ac6aae309de7b656ebaf6e94160908dfe1e16c95454fb2cf59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-30-S45: SEC 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/815/30/#sec-45-other-presentation-matters) SEC content: yes ##### [815-30-S45-1](https://asc.understandingaccounting.org/asc/815/30/#815-30-S45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:38:16.160Z to 2026-09-10T01:38:16.160Z Record version: sha256:77b06b3313454496960f7c8f72f6c120597ef1f0c0a62d3ddc734bb867f219e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2010-04](https://asc.understandingaccounting.org/updates/asu-2010-04/).