Answer to Question #179988 in Accounting for Milan

Question

Debit Cash Flow Hedge

Credit Other Comprehensive Income

• What does this journal entry mean?

Debit Cash

Credit Cash Flow Hedge

• Does this journal entry mean you purchased the asset (cash flow hedge)? Please correct me if it's needed.

Debit Other Comprehensive Income

Credit Gain on Cash Flow Hedge

• What does this journal entry mean?

Other Comprehensive Income is an Equity Account. Right?

Cash Flow Hedge = Is an asset? Right?

Answer 1

Debit Cash Flow Hedge

Credit Other Comprehensive Income

• What does this journal entry mean?

The journal implies recognition of favorable movement in the cash flow hedge where the increment in cash flow is debited while gains from hedging is credited under Other comprehensive income.

Debit Cash

Credit Cash Flow Hedge

• Does this journal entry mean you purchased the asset (cash flow hedge)? Please correct me if it's needed.

No, It means you have disposed the cash flow hedge and received back your cash.

Debit Other Comprehensive Income

Credit Gain on Cash Flow Hedge

• What does this journal entry mean?

This journal implies settlement where you debit cash received from hedging in form of gains and credit the gain that was on the cash flow hedge since you want to show original amount hedged.

Other Comprehensive Income is an Equity Account. Right?

Yes, it is equity account showing gains and losses from derivative transactions such as cash flow hedging.

Cash Flow Hedge = Is an asset? Right?

Yes, because it remains yours until end of the contract.