Forward Contract

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Accounting glossary · Understand, connect, apply

A forward contract fixes terms today for a purchase, sale or exchange to be settled at a future date. It is typically negotiated directly between counterparties.

Example

An importer agrees today on the domestic currency it will pay to receive 20,000 units of foreign currency in three months.

Remember the difference

Both parties take on obligations. An option generally gives its buyer a choice about exercising the contract.

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Prepared with AI assistance. Examples are fictional and simplified for learning.

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Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.

Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.

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