Post 1 of 5 in our blog post series: Common QuickBooks Terms;
What is Undeposited Funds?
What is Undeposited Funds also known as Undeposited Income? These are both QuickBooks terms that simply refers to money not yet deposited. Both terms have been used in QuickBooks versions over the years.
Let’s go through the process when receiving money from your client. You have invoiced them and you have received the money in hand. In QuickBooks, the next step is to receive payment on the invoice you sent your client. When you receive the payment, it is held in a queue, undeposited funds. The second step is to go to banking, and enter deposit. This then pulls the money out of undeposited funds and into the bank account. The in (receive payment) and the out (deposit) creates a wash in the undeposited funds account. This is what is supposed to occur to ensure that the account clears out with every deposit made.
Two things pertaining to this feature.
- You can set up QuickBooks where you have the option to receive the payment directly into the bank account, instead of using the undeposited funds function. This works well if you have one check you are depositing.
- If you have more than one check to deposit, that is when this feature comes in handy. You would receive the payment on all checks received, then make a deposit in QuickBooks that exactly ties to the deposit slip you filled out. If you used #1 for multiple checks received that were deposited together, then your entries will never tie to the bank statement when you reconcile.
If you are looking at a Profit and Loss report and wondering why your income is doubled, is probably because the payment was received correctly, it was not deposited correctly. Mostly likely whoever was doing the bank reconciliation coded all deposits straight to income and did not use the banking deposit function in QuickBooks. This is why income is overstated and why the undeposited funds account balance keeps growing and growing and never clearing out.
If you have any questions about this or a situation that you need advice on, please reach out or comment. Tomorrow’s post will be covering unclassified and unspecified terms that often show up on reports.