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 FAQS
  1. 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 ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Advanced Financial Statement Analysis

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

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  3. Professionals

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  4. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  5. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  6. Economics

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  7. Economics

    What's Recorded in a Cash Book?

    A cash book is an accounting book that records all cash receipts and cash payments before they’re recorded in a business’s general ledger.
  8. Economics

    Explaining Capital Reserve

    Capital reserve is an account on a company’s or municipality’s balance sheet that is dedicated to money reserved for long-term or large-scale projects.
  9. Economics

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  10. Economics

    Understanding Vertical Analysis

    In vertical analysis, each line item on a company’s financial statements is presented as a percentage of a larger number.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!