There are differnet types of derivatives and they are recognized in different ways(some on income statement in current earnings, some in OCI).

I think some hedges are cut up with the effective portion being recognized in OCI and the ineffective portion recognized in current earnings on the income statement. I might have this backwards though.

Jams wrote: i am not as good as you are in explaining topics, but i would try. derivatives definition in simple terms is "it derives value from something else" so it waits for something to happen. it has 3 components, 1) Notional amount:which remains constant, for e.g you are purchasing goods at euros, 250,000 units @0.92 euros, the units are the notional amount. 2) underlying: this is the factor that changes value or is variable, same example above is currency 3)it requires no or very less intial investment. hedging would be to offset the risk you take, because when you trade and there is an underlying, which is variable, there is a risk involved. there are different types of hedges as you would know, purchase firm commitment falls under "fair value hedge" and not cash flows, because you are not trying to predict someting or gamble something. in firm commitment you are just making a contract to buy something in future and you are hedging because of the risk of non-performance of the other party.

Thanks a lot, Jams :) It's certainly helpful... I have added it to my notes.