In plain English
Processor and platform payouts commonly use one. Record gross sales, fees and refunds through it, then clear it with the bank deposit.
It should return to zero except for amounts in transit.
Why it matters
Payment processors and marketplaces deposit a net amount after taking fees and refunds. If you record only the deposit as income, you lose track of gross sales and fees, and your sales totals will not match the processor's reports or any tax forms they issue.
A clearing account lets you record the full picture first, then match the payout to the bank. When it returns to zero, you know every sale, fee and refund has been accounted for. When it does not, you have a clear signal that something is missing.
Worked example
Sales $5,400, fees $156.60, refunds $120. The deposit is $5,123.40, clearing the account.
How to handle it
- Create a separate clearing account for each processor or platform you use.
- Record gross sales into the clearing account, along with fees and refunds, using the processor's payout report.
- When the payout reaches the bank, record a transfer from the clearing account to the bank.
- At month end, check that the clearing balance equals payouts still in transit.
- Investigate any balance that lingers more than a few days past the expected payout date.
Common mistakes
- Recording deposits as income and also recording sales into the clearing account, which counts revenue twice.
- Using one clearing account for several processors, which makes leftover balances very hard to trace.
- Ignoring a small leftover balance each month, which can build into a large unexplained amount by year end.
- Forgetting reserves or holds the processor keeps back, which leaves the clearing account looking unbalanced.
Not the same as: Suspense account
A clearing account is a planned waypoint for transactions you know how to record, like processor payouts. A suspense account holds items you have not yet figured out how to classify. See Suspense account.
Go deeper
- Reconciling Stripe and Square Deposits to Sales: Why payment processor deposits never match sales exactly, and a method to reconcile gross sales, fees, refunds and payouts correctly.
- Bookkeeping for Stripe Payouts, Fees and Disputes: Reconcile Stripe payouts to your bank, record fees, refunds, disputes and balance holds so revenue is reported correctly.
Related terms
- Cost of goods sold (COGS): The direct cost of the products or services you sold during a period.
- Credit memo: A document that reduces the amount a customer owes, usually for a return, error or discount.
- Chart of accounts: The list of accounts a business uses to sort its transactions.
Common questions
What is a clearing account?
A temporary account that holds money or entries until they are matched to the final destination.
Can you give an example of clearing account?
Sales $5,400, fees $156.60, refunds $120. The deposit is $5,123.40, clearing the account.
Why not just record the net deposit as sales?
Doing that understates both sales and fees. Your revenue would then disagree with processor reports and tax forms that show gross amounts.
Is undeposited funds a clearing account?
It works in a similar way, holding payments until they are grouped into a bank deposit. It should also return to zero once deposits are recorded.
General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.