The single biggest mistake seen when reviewing Quickbooks or Quickbooks Online files is the mess created when the undeposited funds account is not used correctly.

Undeposited Funds is an option in the Deposit to drop down on the Sales Receipt and Receive Payment screens.

When Quickbooks is told to use Undeposited Funds, it knows to hold the deposits in a separate account until they are grouped together to match exactly what is deposited into the bank.  This grouping process makes the books match reality.

As an example:

There are 10 sales in a day and each customer pays with a check.  At the end of the day, the cash box has 10 checks in it that are waiting to go to the bank, but one of the customers asked for their check to be cashed next week.  To accommodate that request, 9 checks would be deposited in the bank, with one left behind to get deposited the following trip.

In the example above, the only way to accomplish this in Quickbooks is with Undeposited Funds.  If the Deposit to field was set to the bank account, then Quickbooks would record each check as it’s own deposit.  This won’t accurately match the single deposit of 9 checks and would lead to a nightmare when it’s time to reconcile the bank account.

With Undeposited Funds is in use, there is one more step to the process.  Go to Bank Deposit and check off the items that are being deposited that day.

This step becomes especially important when different types of payments are taken.  Some merchant services (credit card processors) will group everything in one deposit, others will group Visa and MasterCard together while depositing American Express separably.  Of course, cash and checks will go to the bank a different way than the credit cards, so they need to be separated out to match the bank deposit slip.

In other words, Quickbooks needs to match reality!

When deposits are grouped together correctly, reconciling is a piece of cake.  Since everyone likes cake, everyone should like Undeposited Funds.

Go group your deposits, have some cake and call or email us if you run into problems.