Table of Contents
1. Explain personal transactions
2.1 Split income receipt into multiple transactions
3.1 Split payments into multiple transactions
6. Explain income with a transaction processing fee
9. Explain money received in advance of an invoice
10. Explain money paid in advance of an invoice
Introduction
This guide helps to explain all the different ways that you can explain your income and expense transactions on an imported statement.
For a video demonstration on explaining transactions, you can watch the relevant chapter in our "Clear Books Free MTD for Income Tax demo" video here.
Your imported bank statements will appear on your “Dashboard”, displaying transactions that require explanation. Click on this link to begin explaining the transactions.
1. Explain personal transactions
Should any statement transactions be personal, they can be easily explained by clicking on the Person icon in the column on the right.
2. Explain income
If you have receipts that you need to record as income, then you can explain these on the “Transaction” tab using the “Create new receipt” table as explained below.
- Type in the name of the customer in the “from” drop down. If the customer has not been entered before, it will appear with a “New” label. If the customer has been entered before then just select it from the list.
If you prefer not to create specific suppliers for each transaction, you can instead set up a single generic supplier for all transactions.- Select an appropriate income account code in the Account list or add a new account code as appropriate.
- Hit the “Save” button to complete.
2.1 Split income receipt into multiple transactions
If a single receipt comprises multiple transactions, each requiring a distinct account code, you can explain the individual components by adjusting the amount.
- Type in the name of the customer in the “from” drop down. If the customer has not been entered before, it will appear with a “New” label. If the customer has been entered before then just select it from the list.
- Select an account code in the Account list or add a new account code as appropriate.
- Adjust the value in the "Amount" box to match a transaction within this receipt. Select "Add receipt." This can be repeated until all transactions for this receipt are included.
Once all transactions have been added, a table will show the breakdown of the receipt. Click “Save” to complete.
3. Explain expense
If you have payments that you haven't already recorded as a bill, then you can explain these on the “Transaction” tab using the “Create new payment” table as explained below.
- Type in the name of the supplier in the “To” drop down. If the supplier has not been entered before, it will appear with a “New” label. If the supplier has been entered before then just select it from the list.
If you prefer not to create specific suppliers for each transaction, you can instead set up a single generic supplier for all transactions.- Our AI automatically assigns the most suitable expense "Account" based on the transaction description. Additional AI suggestions can be viewed by clicking the down arrow in this field. If the description does not allow for AI suggestions, please manually choose the correct "Account."
- Hit the “Save” button to complete.
3.1 Split payments into multiple transactions
If a single payment comprises multiple transactions, each requiring a distinct account code, you can explain the individual components by adjusting the amount.
- Type in the name of the supplier in the “To” drop down. If the supplier has not been entered before, it will appear with a “New” label. If the supplier has been entered before then just select it from the list.
- Select an account code in the "Account" list or add a new account code as appropriate.
- Adjust the value in the "Amount" box to match a transaction within this payment. Select "Add payment." This can be repeated until all transactions for this payment are included.
Once all transactions have been added, a table will show the breakdown of the payment. Click “Save” to complete.
3.1.1 Mortgage payments
Mortgage interest is not considered a standard business expense for tax purposes. Instead, a tax credit equivalent to 20% of the mortgage interest (regardless of the tax band) is typically applied to the final tax calculation.
You will need to split the payment and explain one part to the “Mortgage capital” account and the other part to the “Mortgage interest” account.
The MTD submission will send these amounts to HMRC to make sure the correct tax credit is applied to the year end calculation.
4. Explain refunds
Explain the payment or receipt on the “Refunds” tab using the “Create new receipt” table as explained below.
- Type in the name of the contact in the “from” drop down. If the contact has not been entered before, it will appear with a “New” label. If the contact has been entered before then just select it from the list.
If you prefer not to create specific suppliers for each transaction, you can instead set up a single generic supplier for all transactions.
5. Explain transfers
If you have more than one bank account set up (for example a current account and savings account), you can explain transfers between the two accounts.
- To explain a payment or receipt as a transfer, click on the transaction and select the "Transfer" tab.
- If you are explaining money out of your account then select the bank account the money is being paid to in the "Transfer to" box. If you are explaining money in, then select the bank account money is being received from in the "Transfer from" box.
Explaining a payment or receipt as a transfer will update the balance of both your bank accounts in Clear books.
When explaining transfers to bank accounts not managed in Clear Books, you have two options: Personal Transactions: Categorise them as Personal Transactions Receipts or Payments (with Capital/Drawings): If you wish to track these cash movements separately from daily personal transactions, explain them as Receipts or Payments and use the 'capital introduced' or 'drawings' account.
6. Explain income with a transaction processing fee
You may occasionally receive the net value of a transaction that includes a processing fee. To explain the full amount and the deducted fees you can do the following:
Part 1: Customising Account Codes
- From the main dashboard, navigate to Settings > Account Codes.
- Scroll through your list of account codes and identify the code you would like to use for the processing fee. Or create a new account code.
- To make this account code available for selection when explaining a transaction, ensure that both the "Show in sales" and "Show in purchases" checkboxes are ticked.
- Click the "Save display settings" button to apply your changes.
Part 2: Explaining a Bank Transaction
- On the "Dashboard", click on the link to explain your bank transactions.
- Identify and click on the specific transaction you need to explain.
- In the "From" dropdown menu, select a contact.
- In the "Account" field, begin typing and then select the account code you want to use as the processing fee.
- Enter the specific amount attributable to the processing fee as a negative amount. Click "Add receipt".
With the transaction fee accounted for, the system will show the remaining unallocated amount.
- In the Account field, begin typing and then select the account code you want to use for the income. Click "Add receipt" to finalise this part of the transaction.
- Once all funds are allocated, the Unallocated balance will be £0.00. Click "Save" to complete the explanation.
Your bank transaction is now fully explained and reconciled within ClearBooks.
6.1 Net rental income
When a letting agent collects rent from tenants, they subtract their fees before forwarding the balance to the landlord. It is important to record both the initial rent amount and the deducted fees, which can be explained as a transaction processing fee.
You can use the Explain income with a transaction processing fee process to explain this type of transaction.
7. Pay an invoice
If you create invoices (not available on Landlord accounts) on your Free account, you can allocate a receipt to the invoice from the imported statement.
- Click the dropdown menu for the "From" field and select the contact associated with the receipt.
- Once the contact is selected, the system will automatically display any matching unpaid invoices for that contact under "Allocate to unpaid invoices".
- Review the invoice details (date, amount) to ensure it's the correct one.
- Click the blue "Allocate" link on the right-hand side of the invoice line.
8. Pay a bill
If you create bills on your Free account, you can allocate a payment to the invoice from the imported statement.
- Click on the "To" dropdown menu and select the name of the contact or supplier you paid.
- After selecting the contact, the system will automatically search for and display any matching unpaid bills under the "Allocate to unpaid bills" section.
- Confirm that the bill details (e.g., invoice date, original due amount) are correct.
- Click the blue "Allocate" link on the right side of the bill's line item.
9. Explain money received in advance of an invoice
If you have received money in advance of an invoice being created, you can explain the receipt as unallocated cash, and allocate this in future when the invoice is created.
- In the "From" field, enter and select the appropriate contact.
- The Amount will be pre-filled with the transaction total.
- Click the "Save as unallocated receipt" button.
10. Explain money paid in advance of an invoice
If you have paid money in advance of a bill being created, you can explain the payment as unallocated cash, and allocate this in future when the bill is created.
- In the "To" field, enter and select the appropriate contact.
- The Amount will be pre-filled with the transaction total.
- Click the "Save as unallocated payment" button.
