A note before we start on this topic is that Undeposited Funds is typically only used when your accounting basis is accrual, and you use invoices and Accounts Receivable. It’s also most helpful when you receive check payments and regularly make deposits of multiple checks at a time.
I’ve spoken with some business owners who are confused why I use Undeposited Funds. They haven’t used it before, and don’t understand what the point is. There’s a couple reasons why I choose to go this route instead of the other options available in Quickbooks Online.
If you’re entering customer payments as they come in, posting all of them to Undeposited Funds is a good way to set up a check for yourself to make sure all the payments you’ve received have been deposited. When you pull your Balance Sheet report, it has its own line item where you can see the total amount of the funds that haven’t been deposited yet. I’ve had clients who have misplaced a check and only noticed because it sat in Undeposited Funds for longer than it should have.
It also makes clearing out the bank feed and reconciling your bank accounts simpler. Some business owners apply all their customer payments to their checking account, which can cause a few problems.
- If you deposit payments into more than one account, it’s easy to choose the wrong one, and you may end up duplicating that income.
- Customer payments that weren’t deposited will just sit where you can’t see them until you reconcile at the end of the month, which means you get to go back and figure out if it really was deposited and when.
- As you’re reviewing the bank feed, you’d need to review your recent customer payments and match the right ones to that deposit. If you need to undo that match, you’re undoing multiple matches instead of just one. This also impacts your account reconciliation because instead of one deposit, you’re looking for multiple transactions that need to add up to what was deposited into the bank.
- It’s easier and quicker to apply all the customer payments to Undeposited Funds, create one bank deposit, and check off all the payments that were put into the bank together. The same for if you need to make any changes, it’s a snap to locate one deposit and make any updates you need to.
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