The clearing account: a very handy gadget

What kind of business XE "clearing account" XE "checking account:clearing" would have a fake checking account, with no money? Many very sound, legitimate businesses. The clearing account is just that, a fictitious bank account, with a zero balance, that exists only on your books. Why? Generally, it gets around limitations.

For example, deductions could be taken from paychecks, for retirement or medical plans, and you would like to send them on with online payment. Payroll liabilities can't be paid by online payment. But you can pay the payroll liabilities out of the clearing account, taking care not to mark it as To be printed. Now the clearing account is overdrawn. The insurance carrier or investment firm is paid online, but the opposing account on that check will be the clearing account. The payee will not be aware of or concerned about that. In the clearing account, the transfer comes in as a deposit, bringing the balance back up to zero. The purpose is accomplished, in a very neat and clean manner.

There is no trick to setting up a clearing account. From the Chart of Accounts, it is just Account|New. The easy part is, you do not need an opening balance! One suggestion: open the register, and click Edit|Change account color. What color? Any color, but it should be bright enough to be a strong reminder that you are in the clearing account.

Clearing accounts do need a little maintenance. They need to be reconciled, and checks should not be left marked as To Print. This is an accommodation to the Condense Data process, used when a file gets very large, and described in Chapter 25.