Using a Clearing Account instead of your main bank account
This Clearing account not only helps to regulate the payments but also helps to make a certain reserve for the upcoming future payments, and that money cannot be used in the business if it is kept aside in an account. You may also have a payroll clearing account in your books where you record payments until you see the payments clear your bank. Once all employees cash or deposit their checks, move the funds from the clearing account to the appropriate account in your books (e.g., Payroll Expense). A payroll clearing account is a zero-balance account that you use to record and monitor your payroll. The account in this scenario is typically a bank account specifically used for holding funds for a temporary amount of time. Because you received a partial payment without an invoice, create an asset clearing account in your general ledger to record the payment. Then, contact Company A to ask for the appropriate invoice number for the payment.
So, technically any gateway you can possibly receive payments from can be accounted for by Synder. The purpose of this type of account is to set aside the payment details before the ultimate transaction finalization.
Difference Between a Simple & Compound Journal Entry
You create a clearing account for the invoice, which you will receive when Company B completes the work. While Company B works on the project, you move funds to the clearing account. At the end of the project, you have $10,000 in the account waiting for the invoice. So, open a suspense account and hold the funds there as you investigate the discrepancies in your books.
- For the purpose of inventory tracking and fulfillment, it’s common for an e-commerce business to record the initiation of the sales process and relief of inventory well before the final deposit.
- The balance of the clearing account helps identify issues if that’s the case.
- You work with Company A on two projects and send two separate invoices to Company A for the work you performed.
It can be a handy tool for big https://personal-accounting.org/ since it helps manage huge income and expenses of the organization with better transparency. Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company. The company owner can take advantage of the clearing account by recording the transactions in that account and keeping aside the required cash.
Who Should Use Clearing Accounts?
If a business fails to keep accurate records of transactions, chaos is the likely result. You could be faced with angry customers whose payments haven’t been credited and vendors demanding payment for supplies you’ve bought. Suspense accounts and clearing accounts are accounting tools designed to prevent such problems. Accounts for holding funds can be seen in escrow, where funds are held until a deal is finalized and then released. This type of clearing account is overseen by an escrow agent, a neutral party in a transaction who verifies the completion of the transaction and transfers funds when the time comes. Such accounts can also be created for handling mortgages and other recurring payments. The person making the payments uses the clearing account for those payments only, making them easy to track.
Is a clearing account a debit or credit?
Cash clearing accounting for cash/bank transactions is a two-step process. When the payment is issued and posted, the accounts payable liability account is debited, and the cash clearing control account (as opposed to the actual cash account) is credited for the payment amount.