What is Clearing Accounts?
A clearing account is a temporary account used to hold amounts until they can be matched and moved to their final accounts.
Clearing accounts help reconcile transactions that pass through several stages before reaching the bank. Their balance should regularly return to zero; a lingering balance signals unmatched items.
Common uses
- Card processor clearing: daily sales are recorded to a clearing account; when the processor deposits funds, the deposit and fees clear the account
- Undeposited funds: checks and cash received but not yet deposited are held until a bank deposit is recorded
- Payroll clearing: payroll provider debits are matched to the payroll journal entry
- Marketplace clearing: platform settlements are recorded gross, with fees and refunds, and cleared when payouts land
Example
A café records $2,000 of card sales on Monday to a processor clearing account. On Wednesday, the processor deposits $1,940, and $60 is recorded as merchant fees. The clearing account returns to zero. If it does not, a batch may be missing or a deposit may have been recorded twice.
Why they help
Without clearing accounts, businesses tend to record bank deposits as sales, which understates revenue and hides fees. Clearing accounts preserve the gross figures while letting the bank reconcile exactly.
Reviewing them
Review clearing account balances at every month end. A small residual may reflect timing; an old or growing balance needs investigation. For unknown items, use a suspense account briefly and resolve it.
Supporting records
Keep the processor or platform reports used to clear each batch. The IRS's recordkeeping guidance emphasizes keeping documents supporting gross receipts. See merchant processing fees and our monthly bank reconciliation guide.
Related terms
- Journal Entry: A journal entry records a transaction in the books with equal debits and credits and an explanation.
- Debits and Credits: Debits and credits are the two sides of every bookkeeping entry; each account type increases on one side and decreases on the other.
- Suspense Account: A suspense account temporarily holds transactions whose correct account is not yet known.
- Merchant Processing Fees: Merchant processing fees are charges businesses pay to accept card and digital payments, including interchange, network and processor fees.
Browse more definitions in the small business glossary.
FAQs
Frequently asked questions
Should a clearing account have a balance at month end?
Ideally only timing items, such as sales from the last day of the month not yet deposited. Older balances need investigation.
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