How to Use Undeposited Funds in QuickBooks Online?

Use of Undeposited Funds in QuickBooks Online

Undeposited Funds account plays a vital role in QuickBooks Online. It works like a temporary account that can be used to hold your payments received from the invoices before depositing them into your bank physically. This workflow is important especially for the users who don’t usually import payment data from external processing services and process transactions through QB Payments. If you are willing to know how to use Undeposited Funds in QuickBooks Online, read our curated guide till the end.

In this comprehensive guide, you will explore the advantages of using the Undeposited Funds account. In addition, we will explain how to use Undeposited Funds in QuickBooks Online with step-by-step instructions.

Use Undeposited Funds in QuickBooks Online

The Undeposited Funds account keeps your payments before you take them to your bank. When you have the deposit slips, prepare bank deposits in your QuickBooks account and combine the payments in the Undeposited Funds(Clear Undeposited Funds from QuickBooks) account to match the details. The process is quite simple and it also helps you to make the reconciliation easier.

To get started with how to use Undeposited Funds in QuickBooks Online, you are required to pursue a few steps.

Step 1: Put the Payments into the Undeposited Funds Accounts

Businesses at least have one Undeposited Funds account in which payment can be kept to combine them later. Users have privileges to decide into which account the deposit can be put when you combine the amount.

Now, it depends on how you have entered your transaction and processed your payment in QuickBooks Online. Continue reading the details to know how to put payment into an Undeposited Funds account in two ways:

Transactions Downloaded from the Credit Cards and Banks

If you have already connected your credit card and bank account then QuickBooks downloads all the transactions automatically for you. Thus, you don’t have to use the Undeposited Funds account or combine the downloaded transactions because QuickBooks has already received your information from the bank. However, you will have to categorize the downloaded transactions:

  • Click on the “+New” button.
  • Then, go to the “Receive Payment” option.
Transactions Downloaded from the Credit Cards and Banks
  • Here, you need to pick a relevant customer. The “Customer” drop-down menu can be used for that.
  • Now, you can place the checkmark for the invoice for which you are receiving the payments.
  • Once done, select the “Undeposited Funds” option using the “Deposit to” drop-down menu.
  • After this, you can enter the required details on the form.
  • Later, you can click on the “Save and Close” button. If you want to send the deposit right away, you can choose the “Save and Send” button. But, if you want to prepare more Undeposited Funds accounts then click the “Save and New” button.

Cash Memos Processed Outside of QuickBooks

If you have processed your payments outside of QuickBooks Online then you are supposed to set up a Cash Memo for the customers then deposit it to the Undeposited Funds. You can carry out the following steps:

  • Go to the “+New” button.
  • Then, click on the “Cash Memo” option.
  • Now, select the “Customer” drop-down menu to choose the relevant customer.
  • Here, you can select the “Deposit to” drop-down menu to select the “Undeposited Funds” option.
  • Then, you can add the required details to the form.
  • Once done, you can click on the “Save and Close”, “Save and Send” or “Save and New” button.

Note: It is suggested to check the Deposit to field so that you can know where the payment is going. If the bank only records the single payment then you don’t have to combine the payment. You can add your payment into the account directly to the account and skip the Undeposited Funds procedure.

Step 2: Record the Bank Deposit

Once you are ready with your deposit slip, you can make the bank deposit and then group payments together. As you do so, all the payments available in the Undeposited Funds account will display in the Bank Deposit screen.

You can use the deposit slip to decide the way you want to combine your payments. To know the procedure of combining the payments and making the bank deposit, you can go through the following details:

  • Click on the “+New” button.
  • Choose the “Bank Deposit” option.
  • Now, select the account using the “Account” drop-down menu. This account should be the one in which you want to put the amount.
  • Then, mark the checkboxes for each transaction that you wish to group together.
Record the Bank Deposit
  • Ensure the total amount of selected transactions matches the amount of deposit slip.
  • After that, you can click on the “Save and Close” or “Save and New” button.

This is how you can make the bank deposit. Remember that your transactions of Undeposited Funds display in the Bank Deposit screen. But if you are unable to see that, you should add the payment to the Undeposited Funds account.

Step 3: Review the Undeposited Funds Account

Now that you have put the payment and set up the bank deposit to match the transaction of the Undeposited Funds account with the bank slip. The next step is to check the final status of your Undeposited Funds account. You can pursue the following steps and clean out the transactions waiting for the deposited:

  • Navigate to the “Accounting” menu.
  • Then, choose the “Chart of Accounts” option.
  • Here, you need to search for the “Undeposited Funds” account in the list.
  • Now, select “Account History”.

If you find any payment that is waiting to be deposited, you can deposit it and make sure you match the bank feed with a deposit slip. This will make your reconciliation procedure easy.

Why You Should Use the Undeposited Funds Account in QuickBooks Online?

Undeposited Funds account is a default account QuickBooks uses to hold your payment until you submit the payments to the bank. There are other strong reasons to use the Undeposited Funds account. Let us share a few details:

Reason 1: Record the Payment Date Accurately

The date on which the payment is received by your customer can be recorded accurately by the Undeposited Funds account. For instance, you receive a check from your customer on 31st Dec, Saturday and in order to keep your bank statements accurate, you tend to record the payment on the same date. However, the payment will not clear the bank until the 2nd of Jan (next year).

But, if you use the Undeposited Funds account, it will record the exact date of payment when it is received. In addition, it keeps the bank account in order. This happens because it records the deposit to your bank account on the same day you prepare the bank deposit.

Reason 2: Easily Handle Multiple Payments

There can be instances when you receive payments from several customers and then you match these payments into one deposit. If you post these multiple payments to your Undeposited Funds account, it allows you to enter the deposit correctly in QuickBooks Online. Hence, it makes the procedure of reconciling the bank account easy.

Furthermore, you can use your Undeposited Funds account with different types of payment modes such as cash, ACH, credit card, or check. Please note, if you are planning to use the QB Payment to process the ACH and credit card payment then there is no requirement to post the transaction to your Undeposited Funds account.

Summing Up!

The Undeposited Funds account keeps a record of your payments received from invoices until you deposit the same payment by visiting your bank. Banks usually combine all your payments into one transaction. Once you get the deposit slip, you can check which payment has been combined by your bank. The same job can be done in QuickBooks as well. This way your QuickBooks account matches the bank records. To avoid any kind of confusion, we have shared how to use Undeposited Funds in QuickBooks Online through this guide.

Are you planning to set up sales tax codes? If so, you should read this guide first “how to set up HST in QuickBooks Online?”

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