Hedge accounting is a financial accounting technique used to match hedging instruments, such as derivatives, with the actual positions or transactions being hedged. This is prevalent in scenarios where businesses want to offset potential negative financial impacts arising from market volatility, such as changes in exchange rates, interest rates, or commodity prices. By using hedge accounting, companies can report these hedging relationships together in their financial statements, thus reflecting the net effect of the hedge instead of reporting the derivative and its associated risk separately.\n\nFor example, if a company is exposed to foreign currency risk due to international sales, it may use currency futures contracts as a hedge against this risk. Hedge accounting allows the gain or loss on the futures to be recognized in the same period as the underlying sales transaction. As a result, the financial statements provide a clearer picture of the company's true economic exposure and performance during that period.