"Undeposited funds”
The Undeposited Funds account in QuickBooks Online serves a special function – it’s a special temporary account that QuickBooks uses to hold payments received from invoices before you deposit them into in the bank. This workflow is especially important for QuickBooks users who don't process transactions through QuickBooks Payments and import payment data from external processing services.
Why should I use the Undeposited Funds Account?
The Undeposited Funds Account is an internal “other current asset account” created by QuickBooks to hold funds until you are ready to deposit them. Imagine the Undeposited Funds account as the lockbox or safe (or drawer) where you keep payments until you are ready to take them to the bank.
The Undeposited Funds account serves as the default "deposit to" account when you receive payments from Invoices, use a payment item on an invoice or enter a Sales Receipt. It's designed to work with the receive payments and bank deposit features to complete the invoicing process. You can use this workflow for single and group payments - what's key is matching what happened in real life inside QuickBooks. This means if your bank recorded a group of payments as a single deposit, you should do the same in QuickBooks.
The Undeposited Funds Workflow
"Undeposited funds”
With single invoice payments (step 2 in the graphic above), you can skip the Undeposited Funds process and deposit received payments directly into your checking (savings, or even credit card) accounts as long this is how the processed payment will show up on your bank statements. While skipping the intermediary step saves you a few extra clicks, knowing how and when to use each workflow can get confusing - - it might be easier to memorize a single workflow and use the Undeposited Funds process every time. It might be a few extra clicks, but you'll know you're always "doing it right." Taking a few moments to track payments through the Undeposited Funds account will prevent major headaches during your monthly reconciliation when the details of each transaction are no longer fresh in your mind.
Grouped Payments
When it comes to dealing with grouped payments, using the Undeposited Funds account to receive payments makes it much easier to manage transactions.
Let's say you had three separate invoices that were paid all at once from a customer. Your "real life" bank that handles your checking account recognized all three payments as a single deposit. When you enter these into QuickBooks, you'd want to mimic the bank and combine the deposit into your QuickBooks checking account. But how do you group them?
This is where "Undeposited funds" comes in. In the case below, I received multiple payments from invoices and sales receipts from the same customer into my Undeposited Funds account.
When it's time to make my Bank Deposit, all three payments are waiting in the "Select the payments included in this deposit" section that's hard-wired to Undeposited Funds Account. I select all three and group them into a single deposit. When I reconcile my QuickBooks accounts against my bank statements at the end of the month, the transaction amount on my bank statement will match the amount in QuickBooks exactly.
If you ever need to make edits to a bank deposit (and send a payment back to Undeposited Funds), just click edit to go back and redistribute out the deposits.
This is just for demonstration, but I clicked edit on the reconciliation and eliminated one of the three payments. Once I click save, I see the new correct amount.
Get started using your Undeposited Funds account
Your Undeposited Funds account is set as your default “deposit to” account when you receive your first invoice payment or enter a sales receipt.
Always take a moment to double-check the "deposit to" account before completing any transaction.
Once you’ve been paid for an invoice and are receiving the payment, click the Global Create Button (
Select the customer from the drop-down menu - their open invoiced will automatically populate on the list below. Choose a payment method and verify the amount received. You can change where you want this money to "deposit to" before making a bank deposited by selecting a different account from the drop-down menu, but remember this is by design to work with the Bank Deposit feature. If you decide to deposit a single payment directly into your checking account, your job is done and the invoice is processed.
After receiving a payment into the Undeposited Funds account (or after entering a sales receipt in situations where you’ve already been paid) your next step is to deposit the money in the bank and close out the invoice, which we go over in “How to make a Bank Deposit in QuickBooks Online.”
Show me why I should use the Undeposited Fund workflow (above)
I have one invoice I sent out to Amy’s Bird Sanctuary last night and was just got a notification that Amy paid me via Visa.
Instead of depositing the payment right away, I receive the payment in QuickBooks Online against the invoice.
Now that all my payments for the day are in QuickBooks, I am ready to make a Bank Deposit. My checking account is already selected at the top, I can see the $239.00 payment from Amy I received into the Undeposited Funds account and two additional sales receipts (deposited to the Undeposited Funds Account) I entered earlier this morning. I do not want to group these together, so I deposit them one-by-one. I click save and done to finish.
I can always go into my checking account in the Chart of Accounts to verify that the payment was correctly received.
Any other tips I should keep in mind to be successful?
- This workflow is unique to QuickBooks and it’s important to follow each step. While you may feel tempted to skip using the Undeposited Funds account, we highly recommend following the workflow to make sure you never accidentally double-count income or leave open invoices in your system.
Check your Progress
What’s Next?
- How to Use the Undeposited Funds Account to Receive Payments in QuickBooks Online
- Setting up for Success in QuickBooks Online - Adding Products and Services, Customers, and Vendors t...
- How to Adjust your Invoice Payment Terms in QuickBooks Online
