Forward exchange contracts (FECs) are agreements between two parties to purchase or sell a specific amount of currency at a predetermined exchange rate and time in the future. FECs are important for businesses engaged in international trade, as they help mitigate the risk of fluctuating exchange rates. Accounting for FECs can be complex, but with the right approach, it can be done effectively.

Here are some steps to consider when accounting for FECs:

1. Understand the accounting treatment: The accounting treatment of FECs depends on the purpose of the contract. If the contract is used for hedging purposes, it is considered a cash flow hedge, while if it is used for speculative purposes, it is considered a fair value hedge. It is important to understand the accounting treatment of FECs to ensure that they are accounted for correctly.

2. Determine the fair value of the FEC: The fair value of an FEC is the difference between the contract rate and the current market rate. This difference should be recorded in the financial statements as an asset or liability at fair value.

3. Revalue the FEC regularly: The fair value of an FEC should be revalued regularly, usually at the end of each reporting period. The revaluation should be recorded in the financial statements as a gain or loss.

4. Recognize gains and losses: The gains or losses on an FEC should be recognized in the income statement in the same period as the revaluation. If the FEC is a cash flow hedge, the gains or losses should be recognized in other comprehensive income and then transferred to the income statement when the hedged transaction affects the income statement.

5. Disclose information in the financial statements: The financial statements should disclose information about the nature of the FEC, the accounting policies adopted, the fair value of the contract, and the gains or losses recognized.

In conclusion, accounting for FECs can be complex but understanding the accounting treatment, determining the fair value, revaluing the contract regularly, recognizing gains and losses, and disclosing information in the financial statements can help a business account for FECs effectively. It is important to seek professional advice if there are any uncertainties or if you lack experience in this area.