If your clearing account has a balance it is because you have not fully completed the financial process for the purchase order or the sales order.
Finale Inventory uses clearing accounts for the financial transaction flow for Purchase orders and Sales orders.
What is a clearing account? A clearing account is a temporary balance sheet account that is used to hold amounts or costs for items while other events or activities take place, at which point the funds are moved to their final and permanent account. Finale Inventory has a clearing account for Purchases and for Sales. Finale puts funds into the clearing account when the shipment occurs and waits till someone creates a Bill or Invoice for the shipment to move the funds to the final destination account, either Accounts payable or Accounts receivable.
See the pictures below that explain the key actions in Finale Inventory that lead to financial transactions in the ledger. Notice the Credit and Debit in the clearing accounts for the time between the shipment and the Bill or Invoice.
Purchase order workflow
Sales Order workflow
This is different than Quickbooks’s normal chart of accounts configuration and process flow. QuickBooks does not use clearing accounts. It will recognize revenue immediately when the Invoice is created because they do not know when it was shipped. So, QuickBooks will hit the Asset account and Accounts receivable account immediately when the Invoice is posted, not using any clearing account. Because Finale Inventory knows when orders/items are shipped we recognize revenue when the items are shipped, thus we use a clearing account to hold the revenue between the time the order is shipped and the Invoice is created. This allows Finale Inventory to know what back-ordered sales or deferred revenue are. This is also true on the Purchase order side. Finale uses a separate Purchase Clearing account.
To explain this flow easily, when a sales order is created in Finale Inventory, regardless of whether it has been paid or not, there is no revenue reported to any chart of account. FInale Inventory waits until a shipment occurs to declare revenue(Sales Income), and then later that revenue is financially reconciled with an invoice. So, when the sales order is created and committed to in Finale Inventory, the sales revenue is not entered into Sales Income in the general ledger. When items, are shipped we increase the Sales Clearing account with a DEBIT and CREDIT the Sales Income account for the product revenue(items on the order). Later, when an invoice is posted, the revenue is moved out of the sales clearing account with a CREDIT, and into the Accounts receivable account with a DEBIT. Finale sends the Invoice to QuickBooks. Later, when the bookkeeper posts a payment against the invoice in QuickBooks, the revenue clears the accounts payable and moves it to undeposited funds.
Contrast this with how QuickBooks operates without Finale Inventory. You do not have sales orders in QuickBooks. You only have an Invoice. When you create an invoice in QuickBooks, it recognizes income and goes straight to accounts payable in one step. No clearing account.
To show these financial steps to a bookkeeper or to see more information about general ledger transaction flows in Finale Inventory go here: Finale General Ledger transaction flow
Comments
0 comments
Please sign in to leave a comment.