A Clearing Account is an account you use to move money from one account to another account when you cannot move the money directly. This account normally has a balance of $0.00 because you always take out the same amount that you put in. It may also be called a Barter or Wash Account.
The following are the common uses for a clearing account. If you have multiple uses for the account, you may want to create one for each.
Manage customers and AR
- Manage accrual basis bad debt.
- Move a Credit Note from one job to another job under the same customer.
- Transfer an amount from one A/R account to another AR account.
- Allocate overhead expenses to customers or classes using a zero cheque.
- Record one cheque that pays invoices to two customers.
Manage suppliers and AP
- Move an amount from one AP account to another AP account.
- Record a refund cheque from one supplier on behalf of another supplier.
- Transfer a Bill or Bill Credit from one Supplier to another, e.g., bill consolidation.
- Move foreign currencies without converting to your home currency.
- Write off a receivable against a payable.
- Record barter transactions with a company who is a customer and a supplier.
To set up a clearing account
- From the Lists menu, select Chart of Accounts.
- Right click anywhere in the Chart of Accounts, then select New.
- In the Add New Account window, select the Bank radio button.
Note: While you can choose from several types of accounts, the best is a bank account because of the following reasons:
- You can pay into a bank account via Receive Payments or Make Deposits.
- You can pay out of a bank account via Write Checks or Pay Bills.
- A bank account appears on the balance sheet and on the statement of cash flows to balances and changes in balances.
- To allocate expenses to overhead or class using a zero cheque, you must use a bank account as your Clearing account.
- Select Continue.
- In the Account Name field, enter Clearing Account, Barter Account or Wash Account.
- Do NOT enter an opening balance.
- Select Save & Close.
To use a clearing account
- Create a journal entry.
- Add the AR or AP from which you are moving money.
- Add the Clearing account.
- Save the Journal Entry.
- Create a second Journal Entry.
- Add the Clearing Account.
- Add the AR or AP account to which you moving money.
- In either Pay Bills or Receive Payments, link the Journal Entries together.