How do you account for a futures contract?
Such as a commodities contract, if you were the commodities trading company?
Other - Business & Finance - 1 Answers
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Answer 1 :
In exactly the same way as a Warranty you sold ... you get a payment up front and this leads to a liability and a POTENTIAL (but unknown) future cost ... Until the 'contract' (or Warranty) expires, you don't know how much (if anything) it's going to cost .. so you can only account for the loss on the contract (Warranty claim) when it actually occurs. Plainly you have to make some PROVISION for loss on a futures contract (same as you make provision for warranty claim or bad debt) ... the amount you put aside is a matter of judgement ..
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