FINANCIAL INSTRUMENTS – Financial Instrument Accounting for Beginners: Examples and Questions (2024)

FAQs

What are examples of financial instruments accounting? ›

Common examples of financial instruments include stocks, exchange-traded funds (ETFs), mutual funds, real estate investment trusts (REITs), bonds, derivatives contracts (such as options, futures, and swaps), checks, certificates of deposit (CDs), bank deposits, and loans.

In simple words, any asset which holds capital and can be traded in the market is referred to as a financial instrument. Some examples of financial instruments are cheques, shares, stocks, bonds, futures, and options contracts.

A financial instrument is a contract leading to a financial asset for one entity and liability for another. It's essential for trading.

There are typically three types of financial instruments: cash instruments, derivative instruments, and foreign exchange instruments.

For example, an entity that sells goods on credit issues an invoice (piece of paper). This invoice (piece of paper) represents a financial instrument and in particular a financial asset – the debtor or receivable.

The most common basic financial instruments are cash, trade debtors, trade creditors and most bank loans. For a debt instrument (receivable or payable) to be basic, returns to the holder must be: •a fixed amount; •a positive fixed rate or a positive variable rate; or.

The following are examples of items that are not financial instruments: intangible assets, inventories, right-of-use assets, prepaid expenses, deferred revenue, warranty obligations (IAS 32. AG10-AG11), and gold (IFRS 9. B. 1).

Money markets include markets for such instruments as bank accounts, including term certificates of deposit; interbank loans (loans between banks); money market mutual funds; commercial paper; Treasury bills; and securities lending and repurchase agreements (repos).

How are financial instruments initially measured? ›

A financial asset or financial liability is measured initially at fair value. Subsequent measurement depends on the category of financial instrument. Some categories are measured at amortised cost, and some at fair value.

So when we talk about accounting for financial instruments, in simple terms what we are really talking about is how we account for investments in shares, investments in bonds and receivables (financial assets), how we account for trade payables and long-term loans (financial liabilities) and how we account for equity ...

Examples of financial instruments include stocks, bonds, derivatives, commodities, currencies, options, futures contracts, and swaps. These instruments have various characteristics, such as maturity dates, interest rates, payment schedules, and underlying assets.

Stocks and bonds are two types of financial instruments. Companies can raise capital by issuing bonds or stocks. A stock is a debt instrument issued by corporations. A Treasury bond is a debt instrument issued by corporations.

A financial instrument refers to any type of asset that can be traded by investors, whether it's a tangible entity like property or a debt contract. Financial instruments can also involve packages of capital used in investment, rather than a single asset.

The term “financial instruments” covers both financial assets and financial liabilities, from straightforward cash to embedded derivatives. For example, all trade receivables, payables, bank loans, inter-company balances and debts and shares in another entity fall within the scope of this standard.

The following are examples of items that are not financial instruments: intangible assets, inventories, right-of-use assets, prepaid expenses, deferred revenue, warranty obligations (IAS 32. AG10-AG11), and gold (IFRS 9.