What is an option contract in accounting
The seller of an option keeps the money paid for the option whether or not the buyer exercises their rights. If you buy an option but don't exercise your right to buy or sell the asset by the due date, it expires and becomes worthless. Options can be bought or sold at any time. The market price of an option will reflect the current value of the asset and the time left before the option expires.
Selling an option can be very risky especially if you don't already own the underlying asset. If the market price rises above the 'exercise' price you may be forced to buy at the market price and immediately sell at the lower 'exercise' price, incurring an immediate loss.
Try the ASX's options course if you want to find out more. Binary options are a type of option where you try to predict the short-term movements of a share price, currency, index or commodity. Unlike other options the holder does not have the right to buy or sell the underlying asset. They are relatively new in Australia and are a speculative, high risk product. Futures and options are complex products. Even experienced investors will struggle to understand the risks involved in trading them.
We recommend you do not invest in these products unless you have a written Statement of Advice from an independent, licensed financial planner stating that the product is suitable for you. Seek financial advice if you need further information and assistance about futures and options.
Futures Options Futures Futures are contracts to buy or sell a particular asset or cash equivalent on a specified future date.
Your revenue fee worksheets are part of your revenue plans, and as such, enable you to process both revenue for your cost transactions and any associated fees. Set your contract to an active processing status. Set the as-incurred revenue plans and any associated events to a status of Ready. Before generating revenue accounting entries for cost-plus contact line fees, you must first calculate and generate the fees for each contract line. Using the fee worksheets, you must evaluate the system calculated, proposed fee amount and either accept the amount or enter a different amount.
When you click the Submit button on the fee worksheet, the system will evaluate the proposed amount against the revenue limits and fee criteria and determine if the proposed amount can be processed. Once processed, summarized fee rows are generated and posted to the Project Transaction tables in PeopleSoft Project Costing using the fee definition criteria setup for the contract's business unit.
If you have selected the Separate Billing and Revenue option on the Installation Options-Contracts page, then you must use the revenue fee worksheets to calculate and generate the revenue fee rows. If you have not selected the Separate Billing and Revenue option on the Installation Options-Contracts page, you must use the billing fee worksheet to calculate and generate both the billing and the revenue fee rows.
Fee rows can be created outside of revenue processing and do not change the status of the revenue plan. The As-Incurred revenue process performs the following steps:. If you have not selected this option, or if the contract line is associated with a fee type of None, then the As-Incurred revenue process selects transactions that are assigned analysis types associated with the PSREV analysis group.
Changes the status of the revenue plans and award and incentive fee events to In Progress. PeopleSoft Contracts delivers streamline processing to enable you to generate fees and recognize revenue for cost transactions using a single process. By performing a few simple setup tasks, you can set up the As-Incurred Revenue process to perform all of the steps for generating accounting entries for your cost transactions and associated fees, post the entries to the general ledger, and update PeopleSoft Contracts and PeopleSoft Project Costing with the results.
To set up streamline processing for revenue generation for cost-plus contract lines and fees, perform the following steps:. Set up the accounting definition defaults for the Journal Generator at the installation level on the Contracts — Installation Options page.
Select the Process Automatically option on the revenue fee worksheets. By selecting the Process Automatically option on the revenue fee worksheets, the As-Incurred Revenue process initiates the fee processor to evaluate the fee amount proposed by the system to determine if it meets the revenue fee limit criteria, and submits the fee for processing. The fee is then processed through to the general ledger and fee data updates are sent back to PeopleSoft Contracts and PeopleSoft Project Costing.
If you are using milestone events for your award or incentive fee schedules, then the milestone status must be complete before the revenue event can be processed.
Throughout the life of the contract, changes may occur that impact revenue costs, limit amounts, or fees. To manage revenue adjustments, PeopleSoft Contracts uses amendment processing to enable you to keep a historical record of any changes that you make.
To manage revenue fee adjustments, you must use the revenue fee worksheets and the Fee Adjustment page if adjusting award or incentive fees. The following table lists some examples of revenue adjustments that you might make and the tasks required to complete the changes:. Controlled by Amendment Processing. Increase or decrease revenue fee percentage for fixed or award fee types.
Enter the fee percentage change on the appropriate Contract Amounts page. The overall fee percentage cannot exceed percent or be less than zero. Increase or decrease the revenue cost share percentage for incentive fee types.
Enter the fee percentage change on the Contract Amounts page. Increase or decrease the revenue target fee for incentive fee types.