Clearing and Suspense Accounts

What are these? There can be a lot of confusion about how to use a clearing account, or why. A clearing account may be referred to as a suspense account, or an Ask Accountant account, or an Ask Client account. On your own books, you can call these accounts whatever you wish. There are really two different ideas around these terms:

A SUSPENSE account is often used as a temporary holding account for transactions, such as when we have a question about what a transaction is for, and therefore which account it should go in, or we need to talk to the client about it. (Or your bookkeeper, if you’re on the other side.) QB will often call these Uncategorized Income or Uncategorized Expense, or Ask My Accountant, depending on the QB version. At year end, this account should be at zero. Even better is to have this account zeroed out at every month-end close.

If I’m entering transactions for a client and have only check numbers and amounts from a bank statement, I’ll put these transactions into a suspense account until I can get the information on who the checks were written to. I’d rather have the amounts entered and be able to reconcile and fill in the blanks later. It’s faster, for me, than waiting for all the information.

A CLEARING account is used when we’re cleaning up accounts but due to the type of transactions, we need an account to run transactions through. For example, if you have barter transactions we would use the clearing account to post the income and expense transactions. A clearing account is also very useful to clear AR and AP transactions. Since QB does not allow multiple AR or AP accounts in one journal entry, using a clearing account to post to can be a lifesaver. It’s a valid work-around for some of the limitations we run into when using software.

The difference in the Suspense and Clearing accounts is that the suspense account transactions will be changed to their proper account, leaving no transactions in this account. In a clearing account, however, the transactions will remain in the account but the account balance will be zero at the end of the reporting period. QB uses Opening Balance Equity as a clearing account when setting up a new file.

Most of us who do this every day have our own methods for where we want to put these accounts in the chart of accounts, and what we call them. Some of us like to keep them as an expense or income account, and as long as the account is zero at the end of the reporting period, that’s fine. Others like to put them on the balance sheet, so they’re very obvious. These accounts should not be on the financial statements because they don’t tell us any useful information, except that there issues that need to be resolved.