Trade Date Accounting

AAA

DEFINITION of 'Trade Date Accounting'

A method company accountants and bookkeepers use to record transactions that take place on the date at which an agreement has been entered (the trade date), and not on the date the transaction has been finalized (the settlement date). If the transaction involves interest, the interest cannot be recorded on the books until the settlement date has arrived.

INVESTOPEDIA EXPLAINS 'Trade Date Accounting'

The distinction between trade date and settlement date accounting is an important one, as it can impact the company's financial statements. For example, assume ZXC Corp., which has a year end of December 31, purchases a new factory with debt on December 26, and takes possession of this factor on January 31 of the next year.

If ZXC uses trade date accounting, the asset and loan amount will be recorded in the company's books - without any interest accruing for the five days - on December 26. If they used settlement data accounting, the asset and liability will be recorded in the company's books on January 31 of the following year.

RELATED TERMS
  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Accrued Expense

    An accounting expense recognized in the books before it is paid ...
  3. Accrual Accounting

    An accounting method that measures the performance and position ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. Asset

    1. A resource with economic value that an individual, corporation ...
  6. Certified Public Accountant - CPA

    A designation given by the American Institute of Certified Public ...
RELATED FAQS
  1. Do I own a stock as of the trade date or the settlement date?

    When it comes to buying shares, there are two key dates involved in the transaction. The first date is the trade date, which ...
Related Articles
  1. Fundamental Analysis

    Detecting Accounting Manipulation

    "One-time charges" and "investment gains" are two strategies companies can use to distort their numbers.
  2. Retirement

    Common Clues Of Financial Statement Manipulation

    Search for the "bloody" fingerprints in accounting crimes.
  3. Options & Futures

    Advanced Financial Statement Analysis

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

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  5. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  6. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  7. Investing

    Understanding Cost Accounting

    Cost accounting is the method of financially allocating expenses to goods that are manufactured for resale. Cost accounting is also referred to as managerial accounting, because managers use ...
  8. Investing

    What are Prepaid Expenses?

    A prepaid expense is an asset on the balance sheet. Due to accounting principles, expenses are often accrued on the balance sheet and expensed in a later period.
  9. Investing

    What's a Sunk Cost?

    A sunk cost was incurred in the past, is independent of future events and cannot be recouped. Economists teach that sunk costs should not be considered when making a financial decision. Rather, ...
  10. Investing

    What are Fixed Costs?

    Fixed costs are business expenses that do not change as the level of production goes up or down. They are one of two types of business expense, the other being variable costs. Variable costs ...

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center