Clearing Account

Accounting Print Email

Clearing account is a general ledger account, but it is not used for the posting purposes. This is an account, which is used to make a summary of similar transactions. This account is opened in the general ledger on temporary basis, and its purpose is that of a reminder. For example, an operating expense clearing account will be maintained to keep track of all the entries of operating expenses and to close the real operating expense account.

Usually, a suspense account is used in the making of the income statements. The transactions are held into this account on a temporary basis until they are transferred to the other accounts. This account is opened usually to hold the revenue and expense amounts until they are transferred to the retained earnings in the balance sheet at the end of company’s company's financial period.

The dissimilarity between a clearing account and a suspense account

Usually, a clearing account is confused with a suspense account. However, this is a general misconception, and these two are very different accounts. The suspense account is opened in a trial balance. This account is opened when there is a difference in the debit and credit side of the trial balance, and the two balances are not matching. This account reports the balances that are greater with the nature of the balance, which helps the accountants in finding the errors and omissions in the trial balance and correct them. Contrary to that, a clearing account is just an account that is used for the reporting purposes. Either this account can be opened to report on some transaction that is not completed yet, or it can be used to report on some management issue.

Examples of a clearing account

Following are the examples of the cases under which opening a clearing account in the general ledger is necessary:

  • Check that are yet uncollected
  • Goods that have been received but are not billed yet

Hence, the purpose of a clearing account in a business’s general ledger is to hold the amounts for transaction that are yet in transit or the transactions that have not been properly recorded yet.  

Login to ReadyRatios

 

Have you forgotten your password?

Are you a new user?

Login As
You can log in if you are registered at one of these services: