Undeposited Funds
Undeposited Funds is a QuickBooks account that temporarily holds customer payments until you make a bank deposit. When you receive multiple checks or cash payments, you first record them to Undeposited Funds, then create a single bank deposit that groups them together. This matches your bank stateme
Undeposited Funds Definition
Undeposited Funds is a QuickBooks account that temporarily holds customer payments until you make a bank deposit. When you receive multiple checks or cash payments, you first record them to Undeposited Funds, then create a single bank deposit that groups them together. This matches your bank statement, which shows one deposit amount rather than individual payments.
Undeposited Funds in Practice — Example
A small accounting firm receives three client payments on Monday: $1,200 check, $800 check, and $500 cash. Instead of recording three separate deposits, they record all payments to Undeposited Funds. On Tuesday, they make one bank deposit for $2,500 total. In QuickBooks, they create a bank deposit that moves all three payments from Undeposited Funds to the checking account. Their bank statement shows one $2,500 deposit, matching their QBO records.
Why Undeposited Funds Matters for Your Books
Undeposited Funds helps your QuickBooks records match your bank statements exactly. Without it, you might record individual customer payments as separate bank deposits, but your bank statement shows them grouped together. This creates reconciliation headaches when the amounts don't align.
The account also provides a clear audit trail. You can see exactly which customer payments were included in each bank deposit. This is helpful for tracking down discrepancies or answering customer questions about when their payment was deposited.
However, a large balance in Undeposited Funds often signals payments that were recorded but never actually deposited — which is a red flag for missing money or incomplete bookkeeping.
How Undeposited Funds Shows Up in QuickBooks
In QuickBooks Online, Undeposited Funds is a default account under Other Current Assets. When recording customer payments (Sales → Receive Payment), select "Undeposited Funds" instead of a bank account. Later, go to + New → Bank Deposit, select the payments from Undeposited Funds, choose your bank account, and save. The payments move from Undeposited Funds to your bank account, and the deposit matches your bank statement.
Common Mistakes
FAQ
Q: Should all customer payments go through Undeposited Funds? A: Only if you'll deposit them in groups. If you deposit each payment individually, record them directly to your bank account. Use Undeposited Funds when you batch multiple payments into a single deposit.
Q: What if I forget to create the bank deposit from Undeposited Funds? A: Your Undeposited Funds balance will be higher than it should be, and your bank account balance will be lower. This creates a reconciliation issue until you create the proper deposit to move the funds.
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