QuickBooks Online Undeposited Funds

Do you know how the undeposited funds account works in your QuickBooks Online file?  This is an account that often needs cleaning up!  If you understand how it is supposed to work, and when it is necessary to post to it, and when you should leave it alone, you can avoid headaches!  This week’s video walks through the uses and entries to explain this often misunderstood account in your QuickBooks Online file.


Hi! Kerry here from MyQuickBookKeeping.

I’ve seen many clients get themselves into complete mess with the Undeposited Funds account. What we’re going to do today is walk through the steps to receive cheques from customers, group them together and deposit them later and also understand how Undeposited Funds works when you’re using payment processing through QuickBooks.

Be sure to watch until the end of the video because then we’ll have a look in the balance sheet and you’ll be able to see if you’ve processed everything correctly.

And today, we’re in the US sample company. So let’s take a look at the balance sheet.

And here you can see Undeposited Funds showing up under Other Current Assets. Now, if you’re in Canada, this account normally shows up a little closer to the top near the Bank Accounts.

Now, it’s really important that you monitor this account and be sure it clears to zero regularly.

So we have a balance of $2,062.52, which is made up of receipts from Cool Cars of $1,675.52 and $387.00 from Freeman Sporting Goods. These amounts have been received but not yet deposited.

Let’s have a look at how they got into the account.

Let’s receive a payment from Bill’s Windsurf Shop.

Bill’s going to pay his total amount of $85 and he’s going to pay it by cheque.

You’ll see here, the account that we selected is Undeposited Funds. This is because we’re not going to put it in the bank right now. We’re going to wait until we have a few cheques and then go to the bank.

So let’s do that now. We’ll grab our bank deposit book and see what cheques we have. Select Bank Deposit.

Look, here are the two we identified earlier along with Bill’s cheque. Add them all together. And we can record the deposit.

If you have a look at our balance sheet now, you can see that Undeposited Funds is zero. Nothing waiting to be deposited.

Now if you’re accepting payments via credit card through QuickBooks’ payment processing, the procedure is very similar but automated.

The payment will appear an Undeposited Funds as soon as the payment is processed. When the customer pays, QuickBooks updates the information so that your accounts receivable is reduced and the amount is pending in the deposit.

Popping to here, from the dashboard, when the funds are paid to you by QuickBooks, they will appear in your Bank Feed. Just like this amount here from, where is it, Travis Waldron, let me go here, here we go.

You can now match the deposit and it will be removed from Undeposited Funds and recorded in your bank. It’s important that you don’t record the payment when the customer pays using this method because then the payment from QuickBooks will not post correctly. The allocation of payments to invoices will be messed up and you could avoid end up with amounts in Undeposited Funds that are difficult to clear.

So remember, if the payment is automated through QuickBooks, touch nothing until you can match the transactions through this Bank Feed here.

Let me know if you have any questions. If this video is useful, click like below. Subscribe to my channel for lots more QuickBooks tips and how to’s. As I’ve mentioned earlier, I’ve created a small business month end check list. If you click the link below, you can sign up for my newsletter, receive the checklist and then you’ll be able to see at a glance every month that everything is all up to date and your records are accurate to help you run your business better.

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