hey it's patti scharf CPA and co-founder of catching clouds the leader in
e-commerce accounting today we're going to talk about clearing accounts 13
accounts are really important for e-commerce businesses and I'm going to
show you why in this video okay let's get started before I talk about clearing
accounts I want to talk about one of the funkiest problems that I see when people
are just starting out using Xero or QuickBooks Online and they are trying to
get their systems to work with all the other e-commerce systems that are out
there so I'm going to show you an example of a problem and then explain
how clearing accounts actually fix that problem so let's say you sell on Shopify
and when you're setting up and you find you find a way to connect your Shopify
account to zero and you're pulling in transaction by transaction and it asks
you where does this money land and you say well that lands in my bank account
so you set up this connection and it pulls in order by order and dumps that
information into your bank account then you turn around and you you say oh great
I can now get all of the transactions from my bank and you set up a bank feed
for the same bank pulling in all the transactions from there and what you'll
end up seen is something like this where you get a deposit for let's say a total
of $30,000 for this one day and it shows up in your bank on May 7th but you also
have all of these orders that came in from Shopify that total this 30,000 for
43 so what you have just done was duplicated the sales in your accounting
system and you've created this jumbled mess because when you look at your bank
statement and you're trying to reconcile it you can easily reconcile against this
$30,000 that showed up from your bank feed but you don't easily reconcile
against everything else and in fact if you were going to do a bank
reconciliation you would see it shows what the balance in Xero is fifty one
thousand was actually in your bank account is thirty two thousand
and that's a big problem you need to know how much money is actually in your
bank and you'll notice all of these are not reconciled because they didn't get
matched up to the 30,000 a pot $30,000 deposit that's actually in your bank so
how do you fix this you fix it with a clearing account so here's what you do
instead of setting up the bank feed going into your bank account from your
Shopify account and honestly this can be true for any kind of third-party tool so
if you're paying bills this way if you are receiving invoice payments this way
and anything where you have detailed transaction in another system you'll
want to set it up this way so instead of setting up the feet going from Shopify
into your primary bank account you skip that step you're going to only
set up the bank feed that's coming from your bank so you'll see this this total
deposit of $30,000 and it's sitting here waiting to be reconciled okay
now you will also set up a fake bank account called the clearing account in
this case we're going to use an AR system okay so I've called it AR system
clearing account and what I've done is set up essentially a sync that's pulling
each of the individual transactions into this fake bank account and you'll see
that the ending balance is that 30,000 for 4303 okay now we're going to go to
we're going to go back to this bank account and we're going to reconcile
this transaction and we are going to consider this as a transfer from that
fake bank account in to this bank account okay so we're gonna pick AR
system clearing account okay so when you
actually look at the reconciliation report for this main bank account the
only stuff that's outstanding are things that are truly outstanding and the
balances are more in alignment to what they're supposed to be in reality okay
and if you go and you look at the AR system
there's this transaction that came over from the bank or actually it's going to
the bank account and when you reconcile that you just click okay it'll be zero
now one thing I want to point out is if this is truly a fake bank account this
may not show up as imported it just kind of did it in the example that I'm doing
you may have to reconcile this by hand so you'll do a manual reconciliation by
by selecting it and choosing mark as reconciled if you do not see this button
here go up to the top click enable mark is reconciled and then the button will
show up and you can reconcile it and you'll see that this system is zero now
a clearing account by definition is just to clear money through it so it should
always be zero at the end of the day if it's not zero there needs to be a really
good reason why it's not zero maybe they've had more say like the deposit
doesn't actually hit until the seventh maybe there are sales on the second
third fourth fifth so you need to kind of keep an eye on that but this will
keep things clean and pretty and it'll keep you from double counting your sales
in your accounting system so now you know why you need a clearing account one
of the most notorious needs for a clearing account is for using your
PayPal account I would set up your PayPal account just like a bank and
we're going to talk more about that in an upcoming video so I hope you like
this video if you did please like share comment if you haven't already please
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