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What the heck is ‘Undeposited Funds’?!?!

If you are reading this and thinking the same thing as the title, the good news is you are not the only one. Undeposited Funds is one of the most misused and misunderstood accounts in QuickBooks. I like to tell my clients to think of Undeposited Funds as your desk drawer.


First thing that I want to remind everyone of is that QuickBooks software is designed to record transactions the way they happen in real life. Senario: You invoice a customer and receive a check in the mail for $500.00. You go into QuickBooks and go to Customer>Receive Payments. Unless you have the preference set to say otherwise, that check is now deposited into your checking account. Meanwhile, the check is sitting in your desk drawer until you bring it to the bank (maybe 3 or 4 days later). There are actually 2 problems with that.
1- Your QuickBooks bank balance now shows that it has $500.00 sitting in it. In reality, you haven’t even brought that check to the bank yet so your REAL checking account does not have that $500.00. QB now does not match reality.
2- What happens if you had received multiple checks that day (one for $500.00 and one for $1000.00) and deposited them into the bank in one deposit. Your bank statement will show 1 deposit for a total of $1500.00 but QuickBooks will show 2 deposits. One for $500 & one for $1000. This makes reconciling very difficult.

To make your life easier, we suggest using the Undeposited Funds account. When you receive that customer payment, you can send the payment into Undeposited Funds instead of directly to the bank account. The payments sit in this holding account (desk drawer) until you are ready to deposit the checks into the bank. Once you make the actual deposit, in QB you can go to Banking>Make Deposits and the Payments screen will open. In this screen you and choose which payments you actually deposited and it will bounce those out of Undeposited Funds and into 1 Bank deposit listing each individual payment. Now not only is you bank balance going to be correct but your deposit amounts will match your statement making reconciliations much easier!

If you need some more explanation or if you have a whole bunch of payments sitting in undeposited funds and don’t know the correct way to move them out – give us a call. We are happy to help!

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2 Responses to What the heck is ‘Undeposited Funds’?!?!

  1. Steve dowden says:

    If I put daily register sales cash checks and credit card in undeposited funds account can I split the total up when transferring my register does not tell me which ones were cash or check or charge

    • Alicia says:

      Steve,

      Sorry for the delay in responding to this. Are you asking if you can post these payments directly into the undeposited funds account? If so that’s not possible and if it were not the best use of the account.

      I’m hoping you can talk me through your question a bit more so I can give you a recommendation on what I think you should do.

      Thanks for your post
      Alicia

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