How to record purchased call option on equity
Records the initial cost of purchasing a call option on a third-party equity instrument.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Derivative Financial Asset | Asset | 5,000.00 | - |
| Cash | Asset | - | 5,000.00 |
💡 Accountant's Note
Purchased options are derivatives and are initially recognized at fair value (usually the premium paid). Subsequent changes in fair value are recorded in profit or loss unless the option is a designated hedging instrument.
Practitioner & Systems Framework
💻 ERP Architecture
Classify as FVTPL Asset in the financial instrument master data.
⚠️ Audit Flags
Failure to record the option at fair value or misclassifying the premium as a prepaid expense.
📄 Required Documentation
Option contract agreement and proof of payment.
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