What is an Undeposited funds Account ?

How does Undeposited funds account work?

·???Undeposited Funds is simply a holding account that tracks payments received from customers that have not been deposited to your bank account.

·???Business owners do not deposit each check received from customers individually rather they keep those with them and clears customer’s account for that particular invoice and deposit several payments at once.

·??At the time of receipt of check or confirmation of credit card payment with customer business owner clears their respective account

·??When you put money in the bank, you often deposit several payments at once.

·??For example, let’s say you deposit five $100 checks from different customers into your checking account. Your bank records all five checks as one $500 deposit.

·??At the time of receipt of check or confirming credit card payment with customer business owner records receive payment in QBO and clears their respective account. QBO by default put these receive payments in un-deposited funds.

How to reconcile undeposited fund -

The?Undeposited Funds Account?keeps a record of payments in QuickBooks until you physically deposit the same payments at your bank. The same can be seen in bank deposit tab. Banks often combine all the payments you deposit into a single transaction. Once you have your deposit slip and know which payments your bank combined, you can do the same in QuickBooks. Put payments into the Undeposited Funds account until you're ready to combine them. When you have your deposit slip, you can combine payments from Undeposited Funds into?a single record.

This way, QuickBooks always matches your bank records. Here’s how to put payments into your Undeposited Funds account.

Example

Micky & Michael each has purchased $ 5,000 items from our store on 10/01/2023. They have paid us $ 5,000 on 10/07/2023 & $ 5,000 on 10/10/2023 by checks. These checks have been deposited in bank 10/11/2023 and bank in QBO shows these as a combined deposit of $ 10,000 in bank feeds on 10/12/2023. Because Banks often combine all the payments you deposit into a single transaction.

On the date of sale (10/01/2023) we will pass below entry:

Mikey’s Account??? ????????? ????????????? Dr.???????? $ 5,000

Michel’s Account?????????????????????????? Dr.???????? $ 5,000

????????????? to Sales Account???????????????????????????????????????????????????????? $ 10,000

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?Therefore, on the date of 10/01/2023 under “Current Asset” we will see a “Account Receivable” outstanding balance for?$ 10,000.

On the date of payment (10/07/2023 & 10/10/2023) we will record “Receive Payment” by passing below entry for Mikey & Michel Separately on respective date:

Undeposited Funds Account???? Dr.? $ 5,000????????????????????????????????????????????????????? ????????????To Mikey’s Account??? $ 5,000

Undeposited Funds Account???? Dr.? $ 5,000

?????? To Michel’s Account?? $ 5,000

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This entry will make “Account Receivable” as “Zero” and in Balance Sheet under “Current Asset” we will only see an amount of $10,000 amount standing in Undeposited Funds Account.

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Now on 10/12/2023, Once we see deposit in bank feeds for ?$ 10,000, we need to see the list of all the “Undeposited Funds” recorded in QBO so that we can match those “Undeposited Funds” against our bank feeds.

We can see the list of all transactions recorded as “Undeposited Funds” You need to click on “Bank Deposit” as shown below:

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Once we see a list of all the “Undeposited Funds” after clicking as shown above we need to match those “Undeposited Funds” by selecting each transaction under the list that matches with our bank feeds. In our case we will select 2 receive payments of $ 5,000 each recorded on 10/07/2023 & 10/10/2023 that will match with our bank feed of $ 10,000 on 10/12/2023.

This is how we shall do a reconciliation of “Undeposited Funds”.

We must keep in mind that this account at the end of the period must be “Zero” or the balance lying in this account shall not be too old. It can keep balances of recently received payments from customers not older than a week or so. Which are yet to be deposited in to the bank.

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How to clear Undeposited Fund having too old payments lying under and still not appeared in bank feeds?

Generally, there can be 2 reasons for having amounts lying under undeposited funds at the end of the month.

1. Either the transaction of bank directly recorded as Income

?instead of matching with the undeposited fund transactions.

2. Either this payment can be a duplicate transaction that is already cleared against a bank deposit. We need to do a thorough check if undeposited fund is not reconciling with “Zero” unless it contains recently recorded payments.

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