When reconciling your bank account at the end of each month, are you struggling to make your deposits to the bank match each individual payment? The solution is to use the undeposited funds account!

There is a lot of confusion surrounding this account. Is it a bank account? Do I ignore it? No! This account is what you would call a clearing account. It’s a temporary holidng bucket to place payments and sales receipts until you physically take this money to the bank. It has been received by your company, but it is still physically with you. When you make it to the bank, you will then make a “bank deposit” and select each individual payment that makes up your deposit to make the grand total. This grand total is what you will end up seeing on your bank statement.

As an example, let’s say you have three customers that make payments:

Dave Jones, $100 payment, cash
Jane Doe, $50 payment, check 1001
Mike Smith, $25 payment, check 2002

n the past, you may have manually entered each payment individually in your check register. But, the bank statement says you have a deposit of $175. The math in this example is easy; obviously the three payments above make up that deposit. However, this gets much more difficult when you have 50 payments of various amounts.

Instead, let’s make sure these payments go to undeposited funds. Now the undeposited funds account will show a balance of $175, but nothing is showing in your checking account yet.

When you’re ready to take these three payments to the bank, you will select “bank deposits” from the banking menu (create menu > other if in QuickBooks Online), and then you should see each payment listed separately. Select each payment going to the bank and ensure your deposit account from THIS screen DOES say your checking account.

Now when you look at your account balances, you will see a balance of $175 total added to your checking account and your undeposited funds balances is now back to zero. You did it!

In QuickBooks desktop, there is a preference to turn off everything except undeposited funds, and I highly recommend keeping that setting intact so that there is less room for a mistake to occur. If you have QuickBooks Online, there is no such setting, so you will need to make sure you “receive payments” and “sales receipts” are both defaulting to Undeposited Funds and that your bank deposit is mapped to your actual depository account. Below is a video showing you how to change this in the event you’re unsure how to fix this issue in your QBO:

If you’re still stuck, feel free toreach out to us ! We are always happy to help!