Accounting and Legal Aspects of Clearing

Under the Croatian civil law system legal entities can apply certain legal concepts to settle mutual claims and liabilities without using cash. Companies with liquidity issues can use this form of payment to settle their current liabilities without unnecessary increase of debt. Relevant forms of clearing elaborated in this paper are set-off (compensation), assignment of claim (cession), assumption of debt and assignment (assignation). Primary focus will be directed on accounting journal entries used to record these transactions in business books and legal provisions which constitute the framework for such activities. Aforementioned forms of clearing are regulated by Croatian Civil Obligations Act (OG 35/05, 41/08, 125/11, 78/15) in Title VI – Alterations in Obligations and Title VII – Termination of Obligation.