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Using Undeposited Funds in QuickBooks Online

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Have you ever been in your Chart of Accounts and noticed Undeposited Funds? It’s possible that you’ve seen it many times without knowing much about it, or when you should use it. Well, get ready to learn something new and take a thorough look at Undeposited Funds. 


This account is special because it’s a temporary account that QuickBooks uses to hold received payments from invoices before you deposit them in the bank. Imagine this account as the blue bank deposit bag businesses use to hold cash/checks/etc before they deposit them at the bank.


Using this Undeposited funds feature is going to be an important part of your workflow if you use an external processing service or have some wait time depositing your money. 

Undeposited Funds.png

You will see Undeposited Funds as the default "Deposit to" account when you receive payments from invoices, use a payment item on an invoice, or enter a sales receipt.


Let’s say you have an invoice that is paid in multiple payments. When you look at your bank account, you see your checking account has those payments as a single deposit from Friday when you took them to the bank. When you enter these into QuickBooks, you want to mirror the bank statement and combine them into one lump sum. Now you’re wondering, how do I do that?


Enter the Undeposited Funds account! Head over to the plus sign icon + and select Receive Payment. Choose your customer from the drop-down menu and their open invoice will automatically show up on the list. Choose your payment method and verify the amount received. Click on Save and New to enter each payment you have.

Receive Payment 2.png


In the example above, I have an invoice of $1000 and I put in three payments: $500, $250, and another $250. As you enter those three payments into QuickBooks, they default to Undeposited Funds. Therefore, when you create your bank deposit, you can select all three payments into one amount, just like your bank account.

Bank Deposit Screen.png


The importance of this step becomes even more apparent in the next screenshot. As we know, reconciling is an integral part of your books and keeping them accurate. When it comes time to reconcile an account, you have your bank statement in one hand and QuickBooks Online in another. 


Because you want QuickBooks to match each transaction on your statement, having this deposit show up as one payment is key. Drum roll, please…


Reconcile Edit.png


Game, set, match! As you can see above, my reconcile screen shows one deposit for those three payments and makes it easy for me to match with my bank. This process also applies if you collect checks and cash from your customers and then like to make one deposit into the bank. No more adding things up and hoping you get the right amount. 

edit deposit giph.gif


You’ll also notice that when you click on the deposit, it expands and you can choose to edit. This is the convenience of this special account I know you’ll learn to love.


Lastly, I’ll leave this video that walks you through recording an invoice using undeposited funds from start to finish. See how easy it is to accomplish this in your account and follow along! 


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