How to record settlement of a credit default swap
Records the cash settlement received or paid upon the occurrence of a credit event for a Credit Default Swap (CDS).
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash | Debit | 100,000.00 | - |
| Derivative Financial Asset (CDS) | Credit | - | 85,000.00 |
| Gain on Settlement of Derivatives | Credit | - | 15,000.00 |
💡 Accountant's Note
Settlement involves receiving the difference between the face value and the market value of the underlying distressed debt. The carrying amount of the derivative is derecognized, and any difference is recognized in P&L.
Practitioner & Systems Framework
💻 ERP Architecture
Record the cash receipt in the treasury module and clear the associated derivative asset balance.
⚠️ Audit Flags
Verification of the 'credit event' trigger as defined in the ISDA agreement.
📄 Required Documentation
Notices from the ISDA Credit Derivatives Determinations Committee and settlement calculation agent reports.
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