In order to use the undeposited funds correctly, it is important to understand how it really works. What are undeposited funds? Think of the Undeposited Funds account as an envelope where you keep checks until you take them to the bank. If you deposit more than one check or payment in a group deposit, you can enter those transactions so that your Bank Register matches your Bank’s monthly statement.
How to Accurately Use the Undeposited Funds Feature in QuickBooks
To use the undeposited funds accurately:
- When you record each customer payment, choose Group with other undeposited funds instead of Deposit to a Bank account.
- When you have all the checks entered and you are ready to actually deposit them in your bank, use Bank Deposits which is found under the Plus Sign Icon at the top of QuickBooks Online. In the desktop versions, go to Banking in the menu bar, and select Make Deposits.
- In the Bank Deposits or Make Deposit screen, click the drop-down to select the bank account you would like to deposit the funds to. This would of course be the bank account that you actually put the money in.
- Select the appropriate Date, and class or location if you are using them.
- You will see a Payments section. These payments listed are the ones you recorded and marked to go to undeposited funds. You can now select which of these payments should be included in this deposit to reflect the lumpsum deposit that was actually made to the bank.
- Click Save.
In order for this process to be successful, you must remember to go to the Bank Deposits window (in QuickBooks Online) or the Make Deposit window (in the desktop versions – Pro, Premier), and deposit the monies to the bank register in QuickBooks. Otherwise, they will just sit there, and if someone else is doing the reconciliations at the end on the month, they may actually enter those payments again directly to the bank register without realizing or even knowing that they were already in the Undeposited Funds account.
As you can see, there are still deposits in your undeposited funds account because the proper procedure was not followed. If the accounts were already reconciled for the period in which the transactions in the undeposited funds account relates, then the entries were entered twice – incorrectly increasing the revenue and may require an amended tax return to be filed if the tax for that period was already done.
I have explained indepth how to correct this in my articles:
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