The Infamous Payables Clearing Account
Posted by Bonnie Wittmeier on Fri, Oct 09, 2009 @ 09:49 AM
Under Inventory Control / Setup / Account Sets - the second GL account in the list is for a Payables Clearing Account. Why do we need a payables clearing account in inventory? Good question!
The Payables Clearing Account is used for receiving goods. When you receive stock - whether you receive through IC or PO, the entry that is sent to the General Ledger is DR (Debit) Inventory, CR (Credit) Payables Clearing. This updates the value and quantity of your inventory, and creates an accrued payable value for the goods, which have now been received, but not yet invoiced.
When the AP invoice arrives, you have 2 options:
- 1) Enter the invoice directly into AP (if you have received the stock through IC) - make sure to code the invoice to the Payables Clearing Account, to create the GL entry DR Payables Clearing, CR AP Trade.
- 2) Enter the invoice through PO (if you have received the stock through PO) - and this will send the invoice to AP. PO will automatically code the invoice to the Payables Clearing Account and the entry that will be sent to the GL (via AP) will be DR Payables Clearing, CR AP Trade.
This is where the Payables Clearing Account gets its name... the invoice, which ultimately goes through Accounts Payables, CLEARS OUT the entry created by the receiving of the goods. Since the invoice has now been processed, the accrual entry (in Payables Clearing) has been removed, and the invoice becomes a true payable - waiting in AP Trade until you write a cheque to your vendor.
The Payables Clearing Account should be reconciled as a month end function. The account balance in this account should always be zero at the period end - with one exception: when goods have been received, and the invoice has not yet been processed.