Outlining Document Clearing

Alex is talking with Tim from accounting, who is responsible for document clearing. Tim will explain why document clearing is needed.

With document clearing, you can track offsetting postings for accounts designated for open item management. Any Items posted to these accounts are then designated either as open items or cleared items.

When you post a transaction to an open item managed account, the transaction is incomplete until the item is cleared. To clear an open item, you post a clearing document that balances the open item or groups of the open items to zero.

Alex writes an e-mail to Tim asking him to analyze the main use cases where the Bike company uses open item management in G/L accounts. Here is Tim’s reply:

Hey Alex,

Here are the main business cases in which we use these processes in general ledger accounting:

1. Bank Clearing Accounts

   Bank clearing accounts are used to record transactions related to bank statements. Open item management helps match deposits and withdrawals, ensuring that the account balance accurately reflects the bank statement.

2. Goods Receipt/Invoice Receipt (GR/IR) Accounts

   GR/IR accounts are used to manage the timing differences between receiving goods and receiving the corresponding invoice. Open item management allows for the automatic clearing of these transactions once the invoice is received and matched with the goods receipt. This ensures accurate tracking of inventory and expenses.

3. Payroll Clearing Accounts

   Payroll clearing accounts are used to manage payroll transactions. The total amount might be temporarily held in a payroll clearing account when payroll is processed. Once all individual employee payments are confirmed and matched with their respective payroll expense accounts, the amounts are then moved out of the clearing account to the appropriate accounts. This is essential for maintaining accurate payroll records and ensuring compliance with labor laws.

4. Provisions

   Provisions are financial items in a company's balance sheet that are recognized for future obligations or losses whose exact amount or due date is still uncertain at the time of recognition. Open item management helps match these expenses with the corresponding payments, ensuring that the financial statements accurately reflect the company's liabilities.

Let me know if you need anything else!

Tim