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. General Ledger

    A company's main accounting records. A general ledger is a complete ...
  3. Settlement Risk

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

    The risk that one party of a contract will fail to meet the terms ...
  5. Trade Date Accounting

    A method company accountants and bookkeepers use to record transactions ...
  6. Accounting

    The systematic and comprehensive recording of financial transactions ...
Related Articles
  1. What is the difference between IAS and ...
    Investing

    What is the difference between IAS and ...

  2. Advanced Financial Statement Analysis
    Options & Futures

    Advanced Financial Statement Analysis

  3. Material Adverse Effect A Warning Sign ...
    Markets

    Material Adverse Effect A Warning Sign ...

  4. Footnotes: Early Warning Signs For Investors
    Retirement

    Footnotes: Early Warning Signs For Investors

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center