A Clearing Account is a temporary holding account containing costs or amounts that will ultimately be transferred to another account. They are used to hold transactions for later posting, and ensure information is recorded correctly and completely. It is similar to an Undeposited Funds account, but Undeposited Funds is not meant to be used for this purpose.
Here’s a common scenario:
Your customers pay for invoices using credit cards. These credit card transactions are processed via a merchant service provider (like Stripe), who holds these payments for a certain period and then deposits the funds into your bank account. They deduct a processing fee for their services directly from the payment.
There are a couple accounts that you may need to set up:
Your merchant account is a bank account where your funds are temporarily placed before being transferred to your regular business bank account. So, you’ll need to set up a Merchant Clearing Account in Kashoo.
The fees that your merchant account provider charges you must be accounted for. You can create a new expense account titled Merchant Fees to expense them.
To set up the accounts, go to the Accounts page and find the Add New Account section at the top.
Step 1. Create a Merchant Clearing Account (Skip this step if you use Stripe)
Number: Kashoo will automatically create one, but you can enter your own number if you like
Description: You can add a description if you like, but it’s not necessary
Name: Merchant Clearing Account (or whatever name you like)
Type: Bank
Step 2. Create a Merchant Fees Expense Account (Skip this step if you use Stripe)
Number: Kashoo will automatically create one, but you can enter your own number if you like
Description: You can add a description if you like, but it’s not necessary
Name: Merchant Fees (or whatever name you like)
Type: Expense
How To Use the Clearing Account
Now that you have the account setup, there are just 3 steps to record the activity and ensure the transactions balance.
To demonstrate we will use an example. Suppose you did a photo shoot for $500. The merchant (Stripe) charges a $15.87 processing fee for their services. They will pay you a net deposit of $484.13. Now let's record that in Kashoo.
Step 1. Invoice your client
We sent a $500 invoice to Beauty Magazine for a photo shoot. Here's a screenshot of the invoice in Kashoo.
The client paid the invoice through Stripe, so Kashoo will automatically update the invoice to reflect the $500 payment. The payment will be deposited into the Merchant Clearing account.
Step 2. Transfer funds from the Clearing account to your Bank account
After some time has passed, the merchant will release the funds to our business bank account. In this example, our bank account only receives a payment of $484.13 due to fees withheld by the merchant (Stripe). So we’ll go to the Journal Entries page and select Enter Transfer to make the transfer from our Merchant Clearing Account to our business Bank Account for this amount.
Step 3. Enter the merchant fee
Afterwards, record the processing fee which was withheld by the merchant (Stripe). In this case, we calculate it by subtracting $484.13 from $500, which leaves a fee of $15.87. We pay that fee using the Merchant Clearing Account as the Paid From and the Merchant Fee account as the Expense account.
