TechnoFunc - Cash Clearing – Accounting Entries

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.