Option 1 is the correct one.

If we enable it then we can post unbalanced intercompany journals i.e debit <> credit for a balancing entity. For this we have to define intercompany accounts in setup-->Accounts-->Intercompany accounts which will post the unbalance part to this intercompany account.

And if you disable it you cannot post the journals which are out of balance.

From what i understood in your question you are talking about enabling Intercompany balancing flexfield qualifier for the 'Company' segment.

If my understanding is correct

Apart from option 1 nd 2 the main idea behind this is to use the company segment as a Balancing segment for the Consolidations ....

Also allowing imbalanced journal entries with Suspense account created for the difference amount is the usual business practice....But only for the same Set of Books.

Please correct me if i m wrong....

Sorry to say that as u have said urself - its a little difficult to understand ur question

Intercompany transactions are mainly to make payments on behalf of other companies (sister concerns / subsidiary companies etc for example). One of the reason could be shortage of funds

There is no question of anything being 'bad' about this - remember that the respective accounts (receivables and pay-ables) are debited / credited automatically keeping a complete track of who has paid. These accounts are specified during creation / enabling intercompany.