Recording customer payments directly into your bank account in QuickBooks Online can lead to discrepancies between your financial records and your actual bank statements. This can make reconciliation difficult and result in errors. Luckily, QuickBooks Online offers a solution to this problem using the Undeposited Funds account.
In this article, we’ll discuss the Undeposited Funds account in QuickBooks, how to use it effectively, and the benefits it offers to businesses of all sizes.
What is the Undeposited Funds account in QuickBooks Online?
The Undeposited Funds account is a special account in QuickBooks designed to help you manage your cash and check payments before they are deposited into your bank account. This feature allows you to record customer payments and organize them efficiently before they are consolidated into a single deposit transaction.
You can think of the Undeposited Funds account in QuickBooks as a “temporary drawer” or a holding account for your received payments before they are deposited into your actual bank account. It serves as an intermediary step in your financial workflow, allowing you to record customer payments separately and then merge them into a single deposit transaction when you’re ready to move the funds into your bank account.
The Undeposited Funds account helps you maintain the accuracy of your financial records by ensuring that the deposits in QuickBooks match the deposits in your real bank account, and it provides a controlled and organized way to manage incoming payments.
Why Use the Undeposited Funds Account?
- Accuracy and Reconciliation: By grouping customer payments in the Undeposited Funds account, you can ensure that your bank deposits in QuickBooks match your actual bank statements.
- Improved Record-keeping: Organizing payments in Undeposited Funds allows for better tracking and auditing of customer payments. This feature becomes especially beneficial when handling multiple payments from various sources.
- Reduced Errors: Manually entering individual payments into your bank account can lead to errors. The Undeposited Funds feature helps minimize mistakes by providing a systematic way to record and reconcile payments.
How to Use the Undeposited Funds Account in QuickBooks
Set Up Undeposited Funds Account.
Click on Accounting in the left navigation menu and select Chart of accounts. Tap on the New button to create a new account, and select Undeposited funds as the account and QuickBooks will automatically categorize it as Assets. This makes sense since the Undeposited Funds account represents money that you’ve received but haven’t yet deposited into your actual bank account.
Setting up the Undeposited Funds account in QuickBooks
Click on +New in your QuickBooks dashboard, and select Receive payment under the Customers column. In the Receive payment form, choose the customer who made the payment. Enter the payment amount and payment method (e.g., cash, check, credit card), and in the “Deposit To” field, select “Undeposited Funds.”
Receive payment screen in QuickBooks Online
To record a bank deposit, click on +New and select Bank deposit under Other. Select the payments you want to deposit from the Select the payments included in this deposit section. Ensure the deposit total matches the amount you intend to deposit in your bank account. Select the appropriate bank account where you will deposit the funds, and click then save the deposit.
Reconcile your accounts.
Periodically, reconcile your bank accounts in QuickBooks to match your transactions with your bank statements. When reconciling, the deposits should match those recorded in your bank account.
The Undeposited Funds account in QuickBooks Online is a versatile tool that addresses several common financial management challenges faced by businesses. It helps ensure the accuracy of your financial records, makes it easy to handle multiple payments, provides transparency for audits, and more.