What is a Clearing Account in Closing the Books?

A clearing account is a general ledger account that is used to temporarily aggregate the amounts being transferred from other temporary accounts. The best example is the income summary account, to which the ending balances of all revenue and expense accounts are transferred at the end of a fiscal year before the aggregate balance is shifted to retained earnings. In this role, the income summary account is employed only as part of the year-end closing procedure.

What is a Clearing Accounting in Day-to-Day Accounting?

A clearing account may be used to hold transactions for a short period of time. This is usually done when a complex transaction arises, for which you do not have time at the moment to discern exactly where it should be recorded. Clearing accounts are useful when you only have a few senior-level accountants who can properly account for these transactions, and who need to defer the entry until they have more time available. In effect, this is a good way to deal with bottlenecks in the transaction processing work flow.