How is a settlement recorded in accounting?

Settlement date accounting is an accounting method that accountants can use when recording financial exchange transactions in the company's general ledger. With this method, a transaction is recorded in the books at the time the transaction was made. When you settle your accounts, you usually do so because you recorded transactions in anticipation of receiving funds or making payments. However, settlement date accounting is a method you can use to enter information into your books only when you have completed the transaction.

With settlement date accounting, enter transactions in your general ledger when the transaction occurs. This method ensures that everything in your ledger actually happened with the exact amount recorded. You liquidate the account the moment you register the transaction. While settlement date accounting allows you to know actual transactions, this method doesn't allow you to see the impact of potential or future transactions.

Therefore, pending transactions on your balance sheet do not appear in your general ledger. In addition, transactions that are not listed in its general ledger do not appear in the company's other financial statements. Revenue received from a litigation agreement will appear in the financial statements, but will also be hidden in other asset and income accounts. However, financial statements also have note sections where litigation can be disclosed, and the United States has regulations that require companies to disclose any litigation they have been through, especially if it resulted in a change in revenues.