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How to Troubleshoot Undeposited Funds in QuickBooks

QuickBooks has a nifty little account, called Undeposited Funds, that is designed to make your bookkeeping life a whole lot easier.  But many users don't understand the account, and often end up with a large balance in the account which, unfortunately, almost always means that revenue has been entered twice.

So what is the undeposited funds account and why is is useful? Undeposited funds is the default account used to track customer payments.  When used properly, it groups the payments together so they match the bank deposits as shown on your statements.  This may not be very important when you first start your business and are receiving only a few payments each day.  But it becomes critically important as you grow.  Without it, each payment would be entered in the register separately making bank reconciliation extremely time-consuming, if not impossible.  

The most common reason for a large undeposited funds balance is if you enter deposits directly into your checking account register.  This tends to happen most often when trying to reconcile the checking account, finding that some deposits are missing, and then entering them directly into the register. 

Another reason is ignoring the popup list of undeposited funds when properly making a deposit through Banking -> Make Deposits.  You should check off everything that's included in the deposit you're about to make before pressing OK.  This will automatically make the correct entry on the Make Deposits transaction form, increasing your checking balance and decreasing your undeposited funds balance.  You can enter any additional deposits unrelated to customer payments, for instance refund checks, on the additional lines in the transaction form.  However, you should not add additional customer payments here.  They should always be entered through either Customers -> Enter Sales Receipts (for counter sales) or Customers -> Receive Payments (for invoices) so they flow properly through QuickBooks.

When a deposit is entered twice, revenue is nearly always entered twice as well.  When you receive a payment, revenue is recorded.  When you make a deposit, either through the Make Deposits form or directly entering it in the register, most people select a revenue account.  Even if you somehow knew that undeposited funds was the correct account to use, you can't manually enter this account in either the register or the Make Deposits form.

So, how do you fix it?  There's a hard way – deleting all the incorrect deposits and re-entering them again correctly.  But if you have many deposits, this could be really time-consuming.  Luckily there's an easier way.  Find the duplicate deposits in your register and copy down the account used.  Then go to Banking > Make Deposits, select all the undeposited funds that have already been deposited and click OK.  Under the list of deposits entered from the undeposited funds screen, enter the account(s) that were used in the duplicate deposits and the amounts as a negative number.  If done correctly, the deposit should equal $0 and have no affect on your checking balance.  It will, however,  properly reduce your undeposited funds balance and your overstated revenue account(s).  If some of the duplicate deposits were in a prior year, you should consult with your CPA or tax advisor for assistance since you may need to file an amended tax return.


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This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.

Ruth Perryman - QuickBooks Specialist Written by +Ruth Perryman

Ruth is the an Intuit Premier Reseller that offers great deals on QuickBooks POS and QuickBooks Enterprise. She has provided expert QuickBooks help to thousands of businesses all over the world since 1996.

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40 Responses to How to Troubleshoot Undeposited Funds in QuickBooks

  • dONNA dIETZ says:

    Many payments on April, May and June were some how duplicated. I deleted some so receive payment screen is correct but then the amount in my customer list and on statements is still showing negative amounts.

    • Hi Donna,

      If the customer has negative A/R, you either have additional payments to delete, additional invoices to enter, or they paid more than they should’ve and have a credit balance.

  • Laura says:

    Hi Ruth;

    I am reconciling the bank and noticed that the amount missing is from a paid invoice. But for some reason the amout doesn’t show up in my Undeposited funds (default for received payments) .
    So I did the time consumming thing of scrolling back to the date where I know I applied the payment and it was not there, but my invoice was paid. How should I proceed?

  • Lisa says:

    I am just now entering the bank deposits from January (bad, I know!) and there’s two checks that I received in Dec 2012 but didn’t deposit until 2013. I made the “receive payments” in December but when I go to “make deposits,” only 2013 transactions are listed. What to do!

    • Hi Lisa,

      Open the payments and check that the Deposit To box shows Undeposited Funds. If it does, press Ctrl H and check for a deposit. If you see one, it’s already been deposited.

  • hilary says:

    My client is having a similar problem. All 2012 statements have been reconciled so the undeposited funds are surely duplicates. What is your opinion on this solution:

    1. Create an asset account called “Undeposited Funds 2″
    2. Deposit the “undeposited funds” to “Undeposited Funds 2″ to clear them out
    3. Debit income for the full amount, credit “Undeposited Funds 2″ for the full amount
    4. Delete “Undeposited Funds 2″ account

    Thank you. Hilary

    • Hi Hilary,

      It’s actually much simpler to create a $0 deposit – it’s 1 step instead of 4.

      Plus you won’t be able to delete Undeposited Funds 2 account once it has transactions. You can only inactivate it.

      • hilary says:

        Hi Ruth,

        I will do the $0 deposit. Who would you put as the vendor for the negative amount?

        Hilary

        • Hi Hilary,

          You don’t need to enter a name.

          • hilary says:

            Hi Ruth,

            Sorry to be a pest on this, but I need to clear the undeposited funds as well as get rid of the associated duplicate revenue. How does the $0 deposit clear that revenue? I think the transaction would:

            debit the bank for $0
            debit undeposited funds the full amount
            credit undeposited funds the full amount

            I’m probably thinking about this wrong. Thank you for helping :)
            Hilary

          • Hi Hilary,

            The line with the negative amount reduces the overstated revenue.

  • Yvette Pacheco says:

    I have the same issue and maybe I am not understading. I had and invoice (properly set up). Got a payment went throught received customer payment and clicked it.Went to make deposit clicked the my way through and its still showing up in my balance sheet as a negative the PL looks right the invoice dumped it into the right account but the balance sheet is still there it didnt clear out. What to do?

    • Hi Yvette,

      You didn’t say which account is has a negative on the balance sheet, but it has nothing to do with receiving payments. There’s probably a journal entry causing the problem. If you double-click on the negative amount, you’ll get a list of all the transactions.

      This is what happens behind the scenes when you create an invoice, receive a payment, and then select the payment from undeposited funds to deposit it.

      Create invoices:

      • Increases accounts receivable
      • Increases the account used on the item, usually a revenue account

      Receive payments:

      • Decreases accounts receivable
      • Increases undeposited funds

      Make deposit (and then selecting the payment from undeposited funds):

      • Decreases accounts receivable
      • Increases the bank account balance

      Once all three transactions have been made, the net effect on accounts receivable and undeposited funds is $0. Only the account used on the item (usually revenue) and the checking account still have a balance.

  • PJ says:

    What if you can’t actually see the ‘Undeposited Funds’ account? It’s not listed on our Chart of Accounts even though it exists because it’s functioning as you describe.

    • Hi PJ,

      You probably inactivated it. Go to Lists > Chart of Accounts and check the Include inactive box at the very bottom of the page. Then click on the X to the left of your Undeposited Funds account.

      Ruth

  • Zach T says:

    Hi Ruth, This is wonderful information and thank you for sharing it. I have a question. While following your advice on clearing my undeposited funds account, with a matching negative deposit to equal zero, I have run into a problem. I accept cash, check, and credit cards via Square. I have matched these payment methods with my ‘negative deposits’ but QB wants me I must assign an account for this transaction. How do I do that exactly? I am using QB Pro 2010. Thanks in advance :)

    • Hi Zach,

      If you haven’t made the deposits in QuickBooks yet, you should select the payments from your undeposited funds list and deposit them. No negative line needed.

      If you have deposited them in QuickBooks already, without selecting the payments from your undeposited funds list, you need to find the deposits and use whatever account(s) you used on them for the negative amounts.

      Basically, these deposits are incorrect and you’re reversing them with the negative lines on the deposit.

      Ruth

  • Jen says:

    I recently started using QB and so I’m not familiar with all the ins & outs. My boss gave me a deposit ( retainer fee) to record but wanted it recorded as undeposited funds because she did not start the job yet. She started the job two days ago and had me create an invoice & wanted the money in the undeposited funds to be used. I’m very confused on what I’m reading. I have no idea how to do this.

    • Hi Jen,

      The undeposited funds account is just an easy way to group your payments together in QuickBooks so you can deposit them together so the deposits in QuickBooks match the deposits on your bank statement. The account has nothing to do with customer deposits, which should be booked as a liability on your balance sheet until the job has been performed.

      Here’s a blog post I wrote about how to book them – How to Track and Apply Customer Deposits in QuickBooks.

      Ruth