LaCrews Bookkeeping’s Blog

Undeposited Funds is an account that holds your received payments until you are ready to deposit them. There is a preference in QuickBooks that allows you to automatically use this account in the received payments screen. But the important thing to remember; is that if you receive an invoice payment to this account, you then need to make the deposit in the Make Deposits screen to your bank account.

Sometimes QuickBooks users will record invoices and receive payments, but do not record their bank deposits.  When they go to reconcile the QuickBooks bank account register against the actual bank statement, they don’t see the deposits.  Usually they record the same deposits a second time directly into the QuickBooks bank register.   This is a common misunderstanding in Quickbooks which causes their sales to be double counted:  the recording of the invoice increases your sales, and the user’s direct entry in the bank account does it a second time.

After you receive payments, the next step is to click the record deposits icon on the homepage (notice the arrows indicating the workflow sequence).   This will open a window which contains all your received payments, and its sum is the amount in your undeposited funds account. For each deposit slip you take to the bank, you should check off the individual payments to match the total on the bank deposit slip.   This puts the deposit slip total into your bank account register automatically.   Once you have done this, your undeposited funds are now zero and your deposits equal sales.

We recently read on someone else’s blog their advice for receiving money without having an invoice or customer.   They stated that you can receive money in QuickBooks without an invoice or a customer/job by creating a journal entry. That’s “accountant-speak” for debits and credits. 

In our experience, the small business owners who we meet don’t want to know that.  We don’t even teach those terms in our beginner QuickBooks class.  If you want a student to loose interest fast, keep using those terms. 

Although you CAN receive funds using a journal entry, it’s probably easier for someone to understand using a “Misc. Customer” on a Sales Receipt.

If the company data file uses invoices to process sales to customers, use Receive Payments to apply the payment to the proper invoice(s).  Receive Payments posts to Accounts Receivable not an income account.  If you use invoices, you might have to use Record Deposits next depending upon your Preferences selection (ie.payments go to a bank account or to Undeposited Funds).  If you use Sales Receipts, the money either goes to the bank account or Undeposited Funds, again, based on Preferences.  Any funds sitting in Undeposited Funds are moved into a bank account by using Record Deposits.

Do you owe a customer a refund?  It’s possible that you received a payment but did not apply it to a specific invoice.   Or, you may have manually input an amount that exceeded the amount on an invoice.   Also, it’s possible that a credit memo has been input incorrectly.