Mark to market accounting
What is mark to market accounting?
Mark to market accounting is the term for the accounting of an asset or liability based on the current market price or for assets and liabilities based on another justly assessed “fair” value. It became part of the Generally Accepted Accounting Principles (GAAP) in the early 1990s.
Where have you heard about mark to market accounting?
Although in many circles mark to market accounting is considered to be a gold standard, it is still regarded as one of the main factors in the scandal and eventual bankruptcy of Enron and the cessation of the accounting firm Arthur Anderson.
What you need to know about mark to market accounting.
Mark to market trading was developed throughout the 20th century – however, it wasn't until the 1980s that the practice was taken up by banks and major corporations. A futures trader would begin an account by depositing money with the exchange, called a margin. The contract is marked at its current market value at the end of every trading day. If the trader is on the positive side of a deal, the exchange pays the profit into his account. If the trader is on the negative side of the deal the exchange charges him the loss that holds his deposited margin.
Find out more about mark to market accounting.
If you are interested on MTM accounting, take a look at our page on margin call.