A clearing account is a financial account that’s used to temporarily hold funds until those funds can be transferred into a separate account for long-term storage/use. If a company is preparing its end-of-year books, for instance, it may place new revenue into a clearing account. After completing its books, the company may then move those funds from the clearing account to a different account.
Do I Have to Use a Clearing Account?
Of course not! There’s no law or rule requiring companies to use a clearing account. With that said, many business owners and accountants find it useful in certain circumstances, such as holding new funds for the purpose of tracking past revenue. If this is something you are interested in doing, keep reading for a step-by-step walkthrough on how to set up a clearing account using the Quickbooks accounting software.
How to Set Up a Clearing Account in Quickbooks
To set up a clearing account in Quickbooks (Desktop version), access Lists > Chart of Accounts, at which point you can right-click anywhere on the screen and choose “New.” From here, click the “Bank” icon in the “Add New Account” window. While you can technically choose from one of several different types of accounts, it’s recommended that you choose bank for the purpose of creating a clearing account. Bank accounts allow you to pay into a bank account using the “Receive Payments” or “Make Deposits” options. Furthermore, you can pay out of a bank account using the “Write Checks” or “Pay Bills” options.
After selecting create new bank account, click “Continue.” From here, enter “Clearing Account, Barter Account or Wash Account” in the “Account Name” field. Double-check to ensure that no balance is entered for the opening balance field (it should be $0). When you are finished, click “Save & Close” to complete the process.
How to Use a Clearing Account in Quickbooks
To use a clearing account in Quickbooks, you’ll typically perform the following:
- Create a new journal entry
- Add the accounts receivable or accountants payable (this is where you are receiving the money from)
- Save the journal entry
- Create an additional journal entry
- Add the clearing account
- Add the accounts receivable or accountants payable (this is where you are moving the money to)
- Link the journal entries together in either the Pay Bills or Receive Payments
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