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. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  2. Pre-Settlement Risk

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

    An accounting method that accountants and bookkeepers use to ...
  4. Accrual Accounting

    An accounting method that measures the performance and position ...
  5. Accrued Expense

    An accounting expense recognized in the books before it is paid ...
  6. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
Related Articles
  1. Detecting Accounting Manipulation
    Fundamental Analysis

    Detecting Accounting Manipulation

  2. Common Clues Of Financial Statement ...
    Retirement

    Common Clues Of Financial Statement ...

  3. Do I own a stock as of the trade date ...
    Options & Futures

    Do I own a stock as of the trade date ...

  4. Advanced Financial Statement Analysis
    Options & Futures

    Advanced Financial Statement Analysis

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center