A Clearing Account:
- Is an account you use to move money from one account to another account when you cannot move the money directly.
- Normally has a balance of $0.00 because you always take out the same amount that you put in.
- Is also known as a Barter Account or a Wash Account.
The most common reason that we need a Clearing Account in QuickBooks is that the program will not let you record transactions that contain:
- Two A/R accounts.
- Two A/P accounts.
- One A/R account and one A/P account.
Uses For a Clearing Account:
- Manage Customers and A/R.
- Manage accrual basis bad debt.
- Move a Credit Memo from one job to another job under the same customer.
- Transfer an amount from one A/R account to another A/R account.
- Allocate overhead expenses to customers or classes using a zero check.
- Record one check that pays invoices to two customers.
- Manage Vendors and A/P.
- Move an amount from one A/P account to another A/P account.
- Record a refund check from one vendor on behalf of another vendor.
- Transfer a Bill or Bill Credit from one Vendor to another, e.g., bill consolidation.
- Other Uses.
- Move foreign currencies w/o converting to your home currency.
- Write off a receivable against a payable.
- Record barter transactions with a company who is a customer and a vendor.
Note: If you have multiple uses for a Clearing Account, you may want to create several such accounts.
How to do it:
To set up a Clearing Account, simply add a new account to your Chart of Accounts. While you can choose several types of account, the best is a bank account:
- 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 check, you must use a bank account as your Clearing Account.
To set up a Clearing Account:
- In the menu bar, select Lists and then Chart of Accounts.
- Right click in the Chart of Accounts and select New.
- In the Add New Account window, click the Bank radio button.
- Click Continue
- In the Account Name field, enter Clearing Account, Barter Account or Wash Account.
- Do not enter an opening balance.
- If you use Account Numbers, enter an Account Number at the top, right of the window.
- Click the Save and Close button.
Your typical transaction:
- Create a journal entry
- Add the A/R or A/P 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 A/R or A/P account to which you moving money.
- In either Pay Bills or Receive Payments, link the Journal Entries together.