Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 11. FINANCIAL INSTRUMENTS (ASC 825)

INTRODUCTION

ASC 825, Financial Instruments, addresses the accounting for financial assets and financial liabilities. More specifically, ASC 825, along with additional guidance in ASC 320, contains requirements for

• When a financial asset or financial liability should first be recognized in the statement of financial position.

• When a financial asset or a financial liability should be derecognized (i.e., removed from the statement of financial position).

• How a financial asset or financial liability should be classified into one of the categories of financial assets or financial liabilities.

• How a financial asset or financial liability should be measured, including

  • When a financial asset or financial liability should be measured at amortized cost or fair value in the statement of financial position.

  • When to recognize and how to measure impairment of a financial asset or group of financial assets.

  • Special accounting rules for hedging relationships involving a financial asset or financial liability.

• How a gain or loss on a financial asset or financial liability should be recognized either in earnings or as a separate component of equity.

SCOPE

In general, ASC 825 applies to all entities in the accounting for both

• Financial instruments

• Other contracts that are specifically included in the scope

Financial Instruments

ASC 825 applies in the accounting for all financial instruments except for those financial instruments specifically exempted. A financial instrument ...