What Does Cleared Mean?

The term cleared in accounting refers to the process of banks settling net receipts or payments between themselves.

For example when a customer pays a business by check, the check is cleared between the businesses bank and the customers bank on which it was drawn.

A cleared funds balance on the bank account of the business will include any credits (cash or cheques) that have completed the clearing cycle. If the business wants to withdraw money or transfer money to another account, it can only do so with money from its cleared balance.

The amount of time taken for a transaction to clear the banking system depends on the transaction and the banks involved. Electronic deposits can be cleared on the same day providing they occur before a certain time, whereas a check can take three to five days to clear.

For further information see the Wikipedia cleared definition.

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Last modified March 23rd, 2016 by Team

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