Undeposited Funds Account

The Undeposited Funds Account is a place to receive funds and hold them until they are physically deposited at the bank.  When you receive a payment from a customer and apply it either to an Invoice or a Sales Receipt, it is placed in the Undeposited Funds Account until you make the deposit and tell QuickBooks which account you are putting the funds in.

When you are ready to make your deposit at the bank, you would click on Banking>Make Deposits, select the proper bank account, enter the date, and check off the items that are included in your deposit.  Be sure that you have chosen the proper bank deposit account and the deposit date.

It is extremely important to maintain your Undeposited Funds Account and clear it on a regular basis.  This account should be cleared and show a zero balance at the end of every accounting period, and for best practice, each time the deposit is actually made at the bank.  Some businesses only “catch up” their books once a month, and having uncleared transactions in the Undeposited Funds Account can become a problem when it is time for a period closure or report filing.

When clearing your Undeposited Funds Account, you may find that there are transactions in there from a prior period.  When this happens, it will be necessary to take a few steps before trying to clear the transactions:

  • Make sure the transactions are from the current fiscal year. Do not make changes to a previous year without first checking with your CPA. 
  • Make sure that the payments were also received another way and have been cleared in the bank reconciliations.
  • Identify which account(s) the transactions were originally posted to.  These are usually income accounts.

Now you would select Banking>Make Deposits, and select the old items to be cleared.  Once you have them all listed, go to the next line of the deposit and enter the account that the original transactions were posted to (if more than one account, you will have to do this on one line for each account).  Make a note in the Memo field to indicate this entry is to clear an old transaction, and then enter a negative figure in the amount column to offset the original incorrect transaction.

For example, one of the old items in the Undeposited Funds Account is a receipt from Bob’s Bones for $125, dated in the period two months prior.  Receipts from Bob’s Bones are applied to the Design Income Account.  To clear this transaction, which was also entered in a regular bank deposit and cleared with the bank statement for that month, you would click on Banking>Make Deposits, and select your bank account, the last day of the period in which his payment was received**, and the payment from Bob’s Bones.  Once the deposit form opens, select the line below the Bob’s Bones payment, and enter Design Income under the From Account column.  Make your note in the Memo field to indicate a correction, and enter “-125.00” in the amount column.  This will result in a zero net deposit to the bank account, but will clear the transaction while keeping all of the pertinent information from the transaction intact.

**When dating the deposit in a prior period, it is imperative that you are sure that no tax filings, or other reporting was generated with information from that period.  Using a current date would artificially understate the Design Income for the current period while leaving an erroneous overstatement in the prior period.  If you are unsure about which date to use, it is best to check with your CPA for direction.

Still have questions?  Email them to help@accurabooks.com.  We are happy to help!

Share This Post: