What is a "clearing account," and how is it used in ICMR?

• A. For recording only bank transactions
• B. For creating a permanent record of intercompany transactions
• C. For temporarily recording intercompany transactions
• D. For archiving completed transactions permanently

Answer: (C)

A clearing account is a temporary account used in the process of matching and reconciling intercompany transactions. Its primary function is to facilitate the interim recording of these transactions until they can be fully reconciled and the final entries are made in the respective accounts of the involved entities. In the context of Intercompany Matching and Reconciliation (ICMR), clearing accounts play a crucial role by allowing companies to manage discrepancies and ensure that intercompany transactions are accurately captured for reporting and analysis.

The temporary nature of the clearing account allows companies to process intercompany transactions efficiently without cluttering their general ledgers with unresolved or unmatched entries. As matching processes occur, entries in the clearing account will either be cleared out, transferred to the final accounts as reconciled, or highlighted for further investigation if discrepancies remain. This approach streamlines the reconciliation process and facilitates accurate financial reporting across multiple entities.