Settlement Date Accounting

AAA

DEFINITION of 'Settlement Date Accounting'

An accounting method that accountants and bookkeepers use to record transactions in the company's general ledger when a given transaction has been fulfilled, which is when performance by both parties has been satisfied. Under settlement date accounting, any interest associated with a transaction must also be accrued when the transaction is settled.

Settlement date accounting is similar to trade date accounting.

INVESTOPEDIA EXPLAINS 'Settlement Date Accounting'

It is an important policy that companies have with respect to when a given transaction should be recorded in the company's general ledger, which is used to create the company's financial statements. However, settlement date accounting is the norm for larger transactions that are material for financial representation and operations.

For example, assume XYZ Company, which has a December 31 year end, entered into a loan agreement with a bank on December 27, but the loan was not delivered until January 15 of the following year. The financial statements dated on December 31 will not include the loan amount.

RELATED TERMS
  1. Adjusting Journal Entry

    An entry in financial reporting that occurs at the end of a reporting ...
  2. Accounting

    The systematic and comprehensive recording of financial transactions ...
  3. Accrual Accounting

    An accounting method that measures the performance and position ...
  4. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  5. Pre-Settlement Risk

    The risk that one party of a contract will fail to meet the terms ...
  6. General Ledger

    A company's main accounting records. A general ledger is a complete ...
Related Articles
  1. Investing

    What is the difference between IAS and GAAP?

    To answer this question, we must first define what IAS and GAAP are, in order to get a better grasp of the function they serve in the world of accounting.The acronym "IAS" stands for International ...
  2. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  3. Fundamental Analysis

    What's a Tangible Asset?

    Tangible assets are property owned by a business that can be touched -- they physically exist. Examples include furniture and fixtures, computer hardware, delivery equipment, leasehold improvements ...
  4. Fundamental Analysis

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  5. Fundamental Analysis

    What are the components of shareholders' equity?

    Understanding company valuation figures, such as shareholders' equity, can be a powerful tool in assessing the financial strength of a business.
  6. Fundamental Analysis

    What is the difference between the acid test ratio and working capital ratio?

    Using liquidity ratios to determine the financial stability of a company is an important tool to accounting professionals and investors.
  7. Fundamental Analysis

    What are some examples of return on investment capital?

    Read about some basic examples of return on investment capital for publicly traded companies and companies that have a handful of investors.
  8. Bonds & Fixed Income

    What is the difference between the yield of stock and the yield of a bond?

    Explore and understand the various meanings of the investment term "yield" as it is applied to equity investments and bond investments.
  9. Fundamental Analysis

    What is the difference between cash flow and EBIDTA?

    Understand the difference between cash flow and EBITDA, and find out why cash flow is a more comprehensive metric for evaluating a company's financial health.
  10. Active Trading Fundamentals

    What is the difference between cash flow and fund flow?

    See how cash flow and fund flow differ from each other, and why fund flow can be used very differently by accountants and investors.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center