How Do I Create a Clearing Account in Xero?

You can create a clearing account in Xero by following these steps:

1. Log in to your Xero account.
2. Go to the "Accounts" menu.
3. Click on the "Add Account" button.
4. Choose "Bank" as the account type.
5. Enter a name for your clearing account.
   • For example, "Clearing Account" or "Suspense Account."
6. Select "Current" as the account code type.
7. Choose "Bank" as the account class.
8. Set the account number.
   • This can be any number you choose, but it's recommended to use a unique number that you can easily identify.
9. Click "Save."

Understanding Clearing Accounts

A clearing account is a temporary account used to hold transactions that haven't been fully reconciled. It helps to:

• Track incoming and outgoing payments: This allows you to monitor payments that are pending or waiting for further information.
• Resolve discrepancies: If there are discrepancies between your bank statement and your records, the clearing account helps you identify and correct them.
• Simplify reconciliation: It makes it easier to reconcile your bank statements by grouping similar transactions together.

Best Practices for Using Clearing Accounts

• Reconcile regularly: It's important to regularly reconcile your clearing account to ensure that all transactions are accurately recorded and accounted for.
• Avoid using clearing accounts for long periods: Transactions should be moved out of the clearing account as soon as possible to avoid confusion and errors.
• Review the balance: Keep an eye on the balance of your clearing account to ensure that it's not accumulating too many transactions.

Example:

Imagine you receive a payment from a customer that you can't immediately identify. You can temporarily record this payment in your clearing account until you have more information about its source. Once you determine the correct customer and invoice, you can move the transaction out of the clearing account and into the appropriate account.