Setting a record to be inactive removes it from transaction windows, hence avoiding clutter. You can choose to omit inactive records on most reports. Inactive accounts still appear on the balance sheet, trial balance, income statement, and account reconciliation reports to provide an accurate picture of your accounts, unless you have chosen to omit accounts that have zero balances. Inactive records also appear on lists, labelled as inactive.
For example, a customer may owe you money, but has not paid for several years. You can remove the customer from lists in transaction windows to ensure that you do not sell them more items, but keep the record for the sake of reports.
Note: Do not make a terminated employee's record inactive until all outstanding transactions are completed.