Accounting Tip of the Month: Clean Up Undeposited Funds
If your income reports in QuickBooks Online look off—check your Undeposited Funds balance.
Undeposited Funds is one of the most misunderstood accounts in QBO, and when it’s not used correctly, it can overstate income, cause reconciliation issues, and clutter your financials.
Here’s what to know:
- What Is Undeposited Funds?
Think of it as a virtual cash drawer. It’s where QBO holds payments—checks, credit cards, or ACH—until you match them to a bank deposit. It’s the digital equivalent of stacking checks on your desk until you head to the bank. (Yes, people used to do that.) - How to Use It Properly
When you receive payments, they land in Undeposited Funds. To clear them, go to “Bank Deposit” in QBO, select the payments that make up the actual deposit, and save. This creates a deposit that matches your bank feed and avoids duplicating income. - How to Spot (and Fix) Errors
If your Undeposited Funds account is packed with old items—or if deposits are showing up directly in an income account—you’re likely overstating revenue. The invoice being paid is the true income, not the deposit itself.
To fix it:
- Regularly review the Undeposited Funds account
- Remove duplicates
- Reclass incorrect entries to the proper account
Cleaning up this account ensures that your income is accurate, your books reconcile easily, and your financial reports are accurate and understandable.
Need help reviewing your Undeposited Funds or correcting past mistakes? We’re here for that. Schedule a conversation today!
