QuickBooks Undeposited Funds Explained: The Secret to Cleaner Bank Recs

In QuickBooks, the Undeposited Funds account is a temporary holding account for customer payments until you record them as a bank deposit.

Here’s how it works:

1. Purpose

• When you receive customer payments (cash, checks, credit card settlements), QuickBooks doesn’t put them directly into your checking account.

• Instead, it places them in the Undeposited Funds account until you create a Bank Deposit in QuickBooks.

• This mimics the real-world process: you collect multiple payments, then take them together to the bank as one deposit.

2. Why It Matters

• Matching bank statements: If you put payments directly into the bank account in QuickBooks, they won’t always match the lump sum deposit on your actual bank statement. Undeposited Funds solves this by letting you group payments and then deposit them as a batch.

• Avoids errors: Keeps your records clean so the QuickBooks register matches your bank’s record exactly.

3. Workflow Example

1. Customer pays you $500 by check.

2. You record the payment in QuickBooks → it goes into Undeposited Funds.

3. Another customer pays you $300 cash. Same thing — it goes into Undeposited Funds.

4. At the end of the day, you take both payments to the bank, depositing $800.

5. In QuickBooks, you create a Bank Deposit from the Undeposited Funds account and select both payments.

6. Now QuickBooks shows one $800 deposit — which matches your actual bank statement.

*QuickBooks Tip: Always run payments through Undeposited Funds. It keeps your books aligned with your bank.