Cash Flow Hedges
Protecting Future Cash Flows
Cash flow hedges reduce uncertainty surrounding future cash flows from forecasted transactions or variable-rate assets and liabilities. The effective portion of the derivative's gain or loss is initially reported in Other Comprehensive Income (OCI) and later reclassified into earnings when the hedged transaction affects income.
Tip
Remember: Fair value hedges affect earnings immediately, while effective cash flow hedge gains and losses initially go to OCI.
Summary
Cash flow hedges defer effective gains and losses in OCI until the hedged cash flows affect earnings.