How to Work with Undeposited Funds in QuickBooks Online

Aug 13, 2023
How to Work with Undeposited Funds in QuickBooks Online

How to Work with Undeposited Funds in QuickBooks Online

Undeposited Funds are funds that haven’t been deposited in the bank yet. By holding payments you receive in Undeposited Funds, you can create a single bank deposit for multiple payments, making it easy to match your bank register with your bank statement.

What are Undeposited Funds?

Think of the Undeposited Funds account as an envelope where you keep checks until you take them to the bank.  If you receive more than one check or payment in a day, you may want to group them all into one deposit.  You want to enter those transactions so that your QuickBooks Online Bank Register matches your bank’s monthly statement.

Recording undeposited funds

Let say you have two checks from customer1 and customer2, so these are payments received but not yet deposited in the bank.  The first step is to record them as received payments in QuickBooks Online.  Here’s the shortcut QuickBooks Online has provided to get this done quickly and efficiently.

  1. Go to the Quick Create (+) Icon and select Receive Payment
  2. Select the customer from the drop-down. In this case, it’s for the first check from Customer1
  3. Notice how it lists any outstanding transactions for Customer1
  4. Change the payment date to today’s date
  5. Select a payment method, in this case it’s a check
  6. Enter a reference number: (usually the check number)
  7. Make sure the Deposit to account is Undeposited funds
  8. Check the box next to the invoice to apply the payment to the invoice.
  9. Select Save and close

Recording Undeposited funds part 2

Now do the same for the check from Customer2, using a slightly different method.

  1. Navigate to Sales on the left navigation
  2. Select Customers from the top tab
  3. Along the top is a money bar with different-colored rectangles. Two are headed Unpaid Last 365 Days. Select the gray rectangle that tells you how many invoices are open right now
  4. You can now see the invoice for Customer1 from the filtered list
  5. Look to the right and select the Receive payment link in the Actions column. Notice how the Match to invoice tick box is already selected, as are Customer2’s details
  6. Change the date to today’s date
  7. Select a payment method: check
  8. Enter a reference number: (usually the check number)
  9. Make sure the Deposit to account is Undeposited funds (Tip: The Deposit to account is sticky and will remember whatever account was entered on the last receive payment transaction)
  10. Select Save and close

Notice that two different methods were used to do the same thing. It doesn’t really matter which you use, but this is a great way to understand how QuickBooks Online creates relationships between activities, like invoicing and payments, thereby doing the hard work for you.

Recording a deposit

Now you can head to the bank and actually deposit the checks.  However, you need to update your QuickBooks Online account too, because those Undeposited Funds are no longer undeposited—they’re deposited.

Recording a bank deposit in QuickBooks Online

The key thing to remember here is that you received two checks that will make up one deposit.

  1. Go to the Quick Create (+) Icon and look to the right
  2. Select Bank Deposit, it’s under the Other category heading
  3. Select Account as Checking account
  4. Change the date to today’s date
  5. The two payments you received will show up under Select Existing Payments.
  6. Check the boxes for Customer1 and Customer2
  7. Notice how the total amount of the deposit is the sum of those two checks and will be the deposit shown in the check register.
  8. Select Save and close

Tips from an Advanced Certified QuickBooks Online ProAdvisor

  • Remember, the Undeposited funds account is a grouping mechanism and if you don’t use it to group payments entered and just post payments to the checking account directly, the amounts won’t match your bank statement if you make deposits at the bank in a batch. 
  • But deposits take all forms and might include checks and cash, and even customer payments via credit card will use Undeposited Funds before they are deposited (even if they are auto-deposited). 
  • A payment on an invoice that uses Undeposited funds that is subsequently deposited, cannot be deleted until that payment is removed from the deposit it was linked to.

If you need a bookkeeper or help with setting up or managing receipts in QuickBooks Online … click here to review my accounting and bookkeeping services and how I can help!

I am an Advanced Certified QuickBooks Online ProAdvisor, specializing in cloud accounting using QuickBooks Online, I can work with you even if we are not in the same part of the US.  Contact me to schedule a virtual meeting to learn how I can help you.

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