Forward contracts are agreements to buy or sell an asset at a pre-determined price at a future date. This type of contract is used to manage risks associated with fluctuations in market prices. The accounting entries for forward contracts need to be recorded according to the Generally Accepted Accounting Principles (GAAP) to ensure accurate financial reporting.

Forward contracts can be either hedging or speculative in nature. Hedging contracts are used to mitigate risk by locking in future prices for an asset. Speculative contracts are entered into to profit from price movements in the market.

Accounting entries for hedging forward contracts:

1. Initial recognition: At the time a forward contract is entered into, no entries are made to the financial statements. The contract is only disclosed in the notes to the financial statements.

2. Revaluation: The fair value of the forward contract is revalued at each reporting period, with any changes in fair value being recorded in the income statement.

3. Settlement: When the forward contract matures, the difference between the contract price and the market price is recognized in the income statement.

Accounting entries for speculative forward contracts:

1. Initial recognition: The fair value of the forward contract is recognized as an asset or liability at the time of inception.

2. Revaluation: Similar to hedging contracts, the fair value of speculative contracts is revalued at each reporting period, with any changes in fair value being recorded in the income statement.

3. Settlement: When the forward contract matures, the difference between the contract price and the market price is recognized in the income statement.

It is important to note that the entries for forward contracts are not the same as those for options and futures. The accounting entries for these instruments may vary due to their unique characteristics.

To summarize, the accounting entries for forward contracts are dependent on their nature, whether hedging or speculative. Accurate recording of these entries is crucial to ensure compliance with GAAP and provide reliable financial reporting.