You have to think of receiving payments in QuickBooks as you sitting at the office recording your various customer payments against an invoice or invoices. This is where the undeposited funds account comes into play. When you receive a payment against a customer invoice you are increasing undeposited funds. The udeposited funds account exists because you have not told QuickBooks what bank account you would like to deposit the funds into. The technical accounting of this procedure is credit accounts receivable and debit undeposited funds. The undeposited funds account is meant to be a temporary account.

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It’s unique to QuickBooks Online and its main purpose is to make bank reconciliations easier. Typically, when you make multiple bank deposits on one trip, the bank combines all individual checks into one transaction. In other words, what you see on your bank statement does not match what you see on your itemized bank deposit slip.

The purpose of the undeposited funds account is to help you record which client paid against which invoice, especially when money is being deposited in bulk. royalties in accounting This feature can be changed again at any time in the future. With your deposit slip in hand, you can record a bank deposit and combine the payments in QuickBooks.

Sales receipts for payments you process outside of QuickBooks:

If your bank records a single payment as its own deposit, you don’t need to combine it with others in QuickBooks. Instead, you can put the payment directly into an account and skip Undeposited Funds. Now you can select an Undeposited Funds or another account each time you create a sales receipt. We make it a point to reconcile the balance sheet accounts every month when we are doing month-end closings.

Keeping the Undeposited Funds account accurate

To begin, you need to ensure that the undeposited funds account is enabled in QuickBooks. To do this, go to “Edit” in the menu, select “Preferences” and then choose “Payments”, which is found in the sub-menu on the left side of the screen. If you find that the deposit was posted straight to Income in the bank feed, un-reconcile the transaction, undo the entry and then match the transaction properly. By default, QuickBooks definitions in accounting puts sales receipt payments into the Undeposited Funds account.

Not giving your client a clear picture of how much money they have paid and how much they owe is a surefire way to tick people off and get clients to leave you pretty quickly. Let’s say two clients of your business both spent equal amounts and were sent an invoice individually for their purchases. You need to be able to apply client A’s payment to his invoice, and client B’s payment to his invoice. If you apply client B’s payment to client A’s account, client B is going to have a fit. He already paid his bill and does not want to receive a past-due notice!

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This is important—not only to make sure no income is missing and everything is reported only once. It also matters because it helps you ensure that your receivables and payables accurately match what has occurred in the business. While most of QuickBooks’ features are pretty well-known, some are not talked about as much.

1. Although you can record it as “deposited”, you’ll create a better representation of your records and accounts  by getting into the habit of using the undeposited funds account found in QuickBooks.
2. When business is thriving, bookkeeping has a way of sneaking up on you.
3. Other times, funds might be in transit for several days.
4. Otherwise, you run the risk of either understating or overstating your income, both of which will have tax implications.
5. If you find that the deposit was posted straight to Income in the bank feed, un-reconcile the transaction, undo the entry and then match the transaction properly.

Also, be sure you are posting the deposit to the correct account — in this case, checking — and that the date on the transaction is the date you will take the deposit to the bank. Some QuickBooks Online users prefer to post payments straight to their bank accounts rather than using the Undeposited Funds account. You will see Undeposited Funds as the default “Deposit to” account when you receive payments from invoices, use a payment item on an invoice, or enter a sales receipt. This account is special because it’s a temporary account that QuickBooks uses to hold received payments from invoices before you deposit them in the bank. Imagine this account as the blue bank deposit bag businesses use to hold cash/checks/etc before they deposit them at the bank. When you put money in the bank, you often deposit several payments at sample irs form 990 once.

Learn how to put payments into the Undeposited Funds account in QuickBooks Desktop. You can rest assured that we will work closely with you to create actionable business plans and accurate financial reporting. We offer our toolkit of financial intelligence that will be your greatest asset for business growth.