In every QuickBooks file, there are certain accounts that are automatically included in the chart of accounts. Many of these accounts are unique but can have certain limitations. One of these accounts is called undeposited funds. For some businesses, this can be a very useful tool to track deposits and collections.
Undeposited Funds can be compared to a “deposits in transit” account. For most companies, there is a delay between when money is collected and when it is deposited into their checking account. This is especially true when a business accepts credit card payments for products or services. This account is useful to account for this time delay.
Using undeposited funds is the same as using a clearing account that holds collected payments or refunds before it hits the bank. However, this account is unique in that it does not allow you to create journal entries or move anything in and out of the account. There are only a few ways to get money into this account and only one way to get it out. Everything that goes through this account has to be generated by either the invoice or sales receipt feature. When using this account, each payment that is received is deposited into undeposited funds. To move it to the bank account, all you have to do it click on “Make Deposits” and check off each check, cash payment, or credit card amount that was deposited into your account. Then it is just like a normal deposit.
While this can be very limiting as it is a very restricted account, it is very useful to track all your deposits. It allows you to group and view which transactions make up a deposit. Whereas clearing accounts just see a lump sum moving out of the account without a clear way to track each transaction, this account will clearly tell you what credit card charge or checks have not yet been deposited. While clearing accounts will tell you that there are funds that haven’t been deposited, it is hard to tell which exact transactions are missing from the bank. Undeposited funds can tell you exactly which charges and transactions need to be investigated. Although it can be a little restrictive, undeposited funds can be very useful when tracking receipt of payments all the way to deposits in the bank account.
For more information on how to use the Undeposited Funds function in QuickBooks, contact one of our QuickBooks ProAdvisors here at TGG.Written by: Ashley Peth TGG Accounting