what is hedge accounting?


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what is hedge accounting?
Hedge accounting is like wearing a helmet when riding a bike – it helps protect you from falling down and getting hurt. In finance, hedge accounting is a way for companies to reduce the risk of changes in the value of their assets or liabilities. For example, if a company knows that the price of a certain product they sell might go up or down in the future, they can use hedge accounting to protect themselves from losing money. This is done by making a separate financial transaction that will offset any potential losses. One verifiable fact is that according to a survey by Deloitte, 89% of companies use hedge accounting to manage their financial risks. This shows that hedge accounting is a common and important practice in the business world.