Cash Clearing – Accounting Entries
The Cash Clearing process enables you to track amounts that have actually cleared your bank. Learn the steps and accounting entries that gets generated during the cash clearing process.
Cash Clearing Account
Till reconciliation happens the amounts pertaining to cash/bank transactions are parked in 'Cash Clearing Account'.
This method focuses on the use of a special cash-clearing control account to help provide an accurate cash-on-hand balance by including the effect of cash/bank transactions that have been issued, but have not yet cleared the bank in reconciliation system.
This provides a clear snapshot of lying unreconciled amount in the organization at any point in time.
For example – when you release payment to any supplier for his due invoice
You typically Dr Supplier A/c and Credit Bank Account
However in Cash Clearing Method – when you issue payment
You will Dr Supplier A/c and Credit Cash Clearing Account
Later when you receive the bank statement and reconcile the payment – at that point you will generate another accounting entry:
That is Cash Clearing A/c is Debited and Bank Account is Credited
Hence at this stage the payment hits your bank account – keeping it always reconciled.
Accounting Entries – Cash Clearing Process
The Cash Clearing process creates accounting entries for each scheduled payment that has been paid, reconciled, and cleared for bank accounts using cash clearing method of reconciliation.
These accounting entries are then posted to the general ledger.
Cash/Bank Clearing account is used to record unidentified debits and credits in bank statement.
At the time of reconciliation process, we have to debit or credit main account and offsetting will be done to Cash/Bank Clearing account.
Then only balance in the main account will match with Bank Statements.
Cash Clearing Accounting Examples
Cash clearing accounting for cash/bank transactions is a two-step process.
Step 1
When the payment is issued and posted, the accounts payable liability account is debited, and the cash clearing control account (as opposed to the actual cash account) is credited for the payment amount.
Step 2
Later, when the cash clearing request is processed, a pair of balanced accounting entries are created to clear the net cash amount of the issued payment for each payment that has been reconciled.
To determine the actual cash balance, add any debit or credit residue in the cash clearing control account from payment or deposit amounts that have not yet been cleared to the cash account balance.
Related Links
You May Also Like
-
Unravel the mystery behind clearing. Why we use clearing accounts. Find the relevance of word "Clearing" in business context.
-
Cash Clearing – Accounting Entries
The Cash Clearing process enables you to track amounts that have actually cleared your bank. Learn the steps and accounting entries that gets generated during the cash clearing process.
-
Bank Reconciliation is a PROCESS to Validate the bank balance in the general ledger With Bank Statement. Learn the bank recon process.
-
In manual clearing, Bank statement details are to be matched manually considering certain rules. Learn the steps involved in manual clearing of bank transactions.
-
In automated clearing, Bank statement details are automatically matched and reconciled with system transactions. Learn how this process works and what are the perquisites to enable the same.
-
The terms Treasury Management and Cash Management are sometimes used interchangeably, while, in fact, the scope of treasury management is larger and includes funding and investment activities as well. Learn all about Treasury Management here!
-
Effectively using cash management with trade finance products brings tangible benefits to both corporates and financial institutions.Learn the various benefits of cash management process.
-
Bank reconciliation process is targeted to validate the bank balance in the general ledger and explain the difference between the bank balance shown in an organization's bank statement. Learn the reasons for existence of differences between the two.
-
What is Account Reconciliation?
Before you understand the Bank Reconciliation Process it is important to understand what is account reconciliation and why it is carried out.
-
In the previous article we talked about the meaning of the account reconciliations. Now as you now the definition of account reconciliation, in this article let us see why it is carried out.
