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Level 1

Undeposited Funds and Statement of Cash Flow

Hi,

 

My general question is that I'm wondering why Undeposited Funds does not show as an adjustment to Net Income on the Statement of Cash Flow?

 

For some background context, we use QBO to manage the finances for our e-commerce company. A sale on our store creates a sales receipt with a deposit to undeposited funds. Shopify will remit aggregate funds to our bank once per week. When I reconcile the bank statement, I split/match the bank deposit to the corresponding sales receipts and create the appropriate balancing entries (for payment processing fees).

 

Overall this process works well, however, when I was trying to tie the balance sheet and statement of cash flows together, there is no adjustment for undeposited funds. This seems odd to me because these sales receipts are included in Net Income, without an adjustment for cash that isn't actually available, the statement of cash flow is overstating true cash.

 

Is there a way to change this to have Undeposited Funds as an adjustment? Or should I look to change my set up of Shopify Sales --> Quickbooks Sales Receipts? 

 

Thanks,

Jake 

Solved
Best answer 12-03-2018

Best Answers
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Level 15

Undeposited Funds and Statement of Cash Flow

Undeposited Funds is part of Banking. It is never income or expense, but money Not in the bank. You've taken possession of it, and are sitting on that fat envelop, for you to take to the teller at the end of the day, for example. Or, you are holding it until the banking download shows it is in Checking. Or, it is showing funds from CC sales waiting to be settled to Operation Checking, from the merchant account Provider.

 

So, that is never income or expense; it's the step After sales has happened. It's simply a Division of your total funds: some in Checking, some in the Safe, some in Petty Cash, and perhaps some In Transit (Undeposited Funds) but you are considered to have Construction Receipt = it's technically Yours, already.

 

Never confuse Banking and Income. The Banking is Cash Flow, but not income or expense.

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5 Comments
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Intuit

Undeposited Funds and Statement of Cash Flow

Hello,

 

Undeposited Funds is still an asset to your company so it represents real money you've collected, you just haven't deposited it in the bank yet. (Think the blue bag of 50's and checks you keep under your register drawer or the safe you keep in the back office to hold money before you do weekly bank drops)

 

I always recommend setting up QuickBooks to mimic as close as possible to whats happening in real life.  If in real life Shopify deposits the money into your bank account then I would recommend adjusting your Shopify QBO sync settings so it deposits the money into the bank account on the sales receipt instead of Undeposited Funds.

Highlighted
Level 15

Undeposited Funds and Statement of Cash Flow

Undeposited Funds is part of Banking. It is never income or expense, but money Not in the bank. You've taken possession of it, and are sitting on that fat envelop, for you to take to the teller at the end of the day, for example. Or, you are holding it until the banking download shows it is in Checking. Or, it is showing funds from CC sales waiting to be settled to Operation Checking, from the merchant account Provider.

 

So, that is never income or expense; it's the step After sales has happened. It's simply a Division of your total funds: some in Checking, some in the Safe, some in Petty Cash, and perhaps some In Transit (Undeposited Funds) but you are considered to have Construction Receipt = it's technically Yours, already.

 

Never confuse Banking and Income. The Banking is Cash Flow, but not income or expense.

View solution in original post

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Level 1

Undeposited Funds and Statement of Cash Flow

I think I understand now. So when I think about tieing together the Statement of Cash Flow and the Balance Sheet, I start with the "Cash" accounts at end of period_0, add net cash flow for period_1 and arrive at ending cash for period_1. This should be equal to the sum of "cash" accounts on my balance sheet.

 

I think where I went wrong was thinking the "Cash" accounts were just the Banking Accounts, but it's actually Banking + Undeposited Funds + Petty Cash + etc.

 

 

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Level 15

Undeposited Funds and Statement of Cash Flow

You start with total Cash at the beginning of the reporting period.

 

Then, changes in other balance sheet accounts that used or provided funds, such as: a Loan Balance went down when you used Cash to make that payment; your AR went Down = you got Paid, so that increased funds. The Destination or Repository of those funds is any "stash of funds" you manage, including UF, if that is Not at 0. Or, you took a new loan = money got deposited in the bank. Or, you bought Inventory, so cash went down but Assets Total didn't change.

 

= ending Cash (cash and cash equivalents, really) at the end of the reporting period.

Highlighted
Level 1

Undeposited Funds and Statement of Cash Flow

Thanks for the help, my problem is that I was thinking about UF as a balance sheet account where changes in it would make an adjustment to "cash" (which i was thinking about as just the bank accounts). All squared now. Thanks!

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