Settlement Date Accounting

Settlement date accounting is 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. When trading securities, this is when the traded security has settled, which means delivery of the security to the buyer from the seller is complete. 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, except the time that the transaction is recorded is shifted from the transaction initiation date to its completion date.

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.