The number one mistake that untrained users make in QuickBooks has to do with the Undeposited Funds account. In fact, you may have this problem and not even know it. Just the name “undeposited” sounds like something bad – like you made a mistake. In this post, I’ll be unraveling the mysteries of the QuickBooks Online Undeposited Funds account.
What are Undeposited Funds?
The Undeposited Funds account is used to track checks received from customers until a deposit is made at the bank and entered in QuickBooks. I happen to love the Undeposited Funds account because, when used correctly, the amount of the deposit entered in QuickBooks should match up to the deposit amount on the bank statement. This makes the monthly bank reconciliation process super easy.
If the Undeposited Funds account is not used, deposits in QuickBooks must be added together manually to reconcile them to deposits on the bank statement. Since I am a fan of 5MinuteBookkeeping tips, I don’t recommend spending time manually adding numbers together.
How Undeposited Funds Work in QuickBooks Online
First, you need to understand that there are 3 steps to getting this right and that you must do these 3 steps in order. Here is a video:
Step 1 – Invoice
First, you enter a customer invoice by clicking on the + sign (top center) and select Invoice. Then save and close.
Step 2 – Receive payment
When you receive a check payment from your customer, you enter the payment received from the customer.
Click on the + sign (top center) and select Receive Payment.
Enter the date.
Select Check as the payment method.
Enter the check number in the reference number.
Be sure that the Deposit to account says “Undeposited Funds”.
Enter the amount of the check.
Click Save and Close.
Step 3 – Bank Deposit
Click on the + sign (top center) and select Bank Deposit.
Click next to each check you entered in Step 2 to select the customer payments.
Make sure that the bank account name, date, and amount are correct.
It’s very important for the total amount of the deposit to equal the amount of the deposit you made at the bank.
Click Save and Close.
That’s it. By following all 3 steps in order you will not make any mistakes with the Undeposited Funds account.
How does the Undeposited Funds account get messed up?
Undeposited Funds gets messed up because untrained users don’t follow the 3 steps I just showed you. Normally, they enter an invoice, enter a customer payment, and then enter a manual deposit to “Sales Income” instead of selecting the customer payment from the list in the Bank Deposit window.
If you follow the 3 steps I showed you – in order – Undeposited Funds will not get messed up.
How do you know if you have old balances in Undeposited Funds?
You can easily see if you have old balances in Undeposited Funds. Click on the + sign (top center) and select Bank Deposit. You will see old balances in the Select Existing Payments window in QBO.
How do you fix old balances in Undeposited Funds?
That’s a topic for another blog post. However, if you understand the 3 steps I showed you, then you may be able to find where you went wrong and to correct your entries. I highly recommend that you seek the help of a professional if you have a lot of old balances in Undeposited Funds. It takes some detective work to figure out what happened to each transaction.
Now you know how to work with Undeposited Funds. Take time to see if you have any problems with your Undeposited Funds account.
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