Clearing Accounts 101
Overview
Clearing accounts are a simple but powerful accounting tool that helps bridge the gap between when you make a sale and when the money actually hits your bank account.
What is a Clearing Account?
Think of a clearing account as a temporary holding room for your money. It's an account in QuickBooks Online (QBO) that temporarily holds transactions until they're ready to be moved to their final destination - usually your bank account.
A clearing account should always end up with a $0 balance when you're done using it, because you're essentially moving money from one place to another, not creating or destroying it.
Other names you might hear:
- Holding account
- Wash account
- Transit account
- Suspense account
Why Do Payment Processors Need Clearing Accounts?
When you process credit card payments through services like Square, Stripe, or Mindbody Payments, there's usually a delay between when you make the sale and when you receive the money. Here's what typically happens:
- Monday: You sell a $100 service and charge the client's credit card
- Wednesday: The payment processor deposits $97 to your bank account ($100 minus $3 processing fee)
Without a clearing account, your books would show $100 in sales on Monday, but only $97 showing up in your bank account on Wednesday. This creates a confusing mismatch that's hard to track.
How FlexBooks Uses Clearing Accounts
Good news! FlexBooks automatically sets up and manages clearing accounts for you. Here's what happens behind the scenes:
- When you make a sale: FlexBooks records the full sale amount (e.g., $100) to a clearing account
- When you receive the deposit: You'll transfer the net amount (e.g., $97) from the clearing account to your bank account
- Monthly fee accounting: You'll record the processing fees (e.g., $3) as an expense, which also reduces the clearing account
- Result: The clearing account balance returns to $0, and your books accurately reflect both your sales and your expenses
Common Payment Processors and How They Work
Mindbody Payments
- What it is: Mindbody's own payment processing service (powered by Stripe)
- How deposits work: Deducts all processing fees before depositing to your bank account
- Bank feed description: Shows as "MINDBODY, Inc." in your bank feed
- FlexBooks setup: Uses the "Credit Card Processor" clearing account
- Learn more: Using FlexBooks with Mindbody Payments
Square
- What it is: Popular payment processor for in-person and online transactions
- How deposits work: Usually deposits daily with fees deducted
- Bank feed description: Shows as "Square" or "SQ" in your bank feed
- FlexBooks setup: Uses a "Square" Other Current Asset clearing account
Stripe
- What it is: Payment processor commonly used for online transactions
- How deposits work: Customizable payout schedule with fees deducted
- Bank feed description: Shows as "Stripe" in your bank feed
- FlexBooks setup: Uses the "Stripe" Other Current Asset clearing account
What You Need to Do: The Transfer Method
The only thing you need to remember is to Record as Transfer when processing your payment processor deposits from your bank feed. Here's how:
- From your QBO Bank Feed, click on your payment processor deposit
- Select "Record as Transfer"
- Select your Clearing Account from the "Transferred from" dropdown menu
- Click "Add"
Pro Tip: Once you're comfortable with this process, create a rule in QBO to automatically "Record as Transfer" all payment processor deposits to the "Credit Card Processor" account.
Real-World Example
Let's say you're a yoga studio owner using Mindbody Payments:
- Day 1: You sell $500 worth of classes and packages
- FlexBooks records: $500 to the "Credit Card Processor" clearing account (Balance: $500)
- Day 3: Mindbody Payments deposits $485 to your bank account ($500 minus $15 in fees)
- You transfer: $485 from "Credit Card Processor" to your bank account (Balance: $15)
- End of month: You record $15 in processing fees as an expense (Balance: $0)
Your books now accurately show $500 in sales, $15 in processing fees, and $485 deposited to your bank - everything balances perfectly!
The Bottom Line
Clearing accounts might seem complicated at first, but they're actually making your life easier by:
- Keeping your sales and bank deposits organized
- Making it easy to track processing fees
- Ensuring your books balance correctly
- Simplifying bank reconciliation
Remember: FlexBooks does the heavy lifting by setting up and managing these accounts automatically. You just need to use the "Transfer" method when processing your payment processor deposits.
Need Help?
If you have questions about clearing accounts or need assistance with your FlexBooks setup, our support team is here to help. We can:
- Walk you through your first few transfers
- Create custom rules for your specific payment processors
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