bank reconciliation

The Undeposited Funds account is an Other Current Asset account that’s automatically created by QuickBooks to record funds received by a company that are not immediately deposited in a bank account.

When you record customer payments by clicking on the Customers->Receive Payments menu selection, you’re recording individual receipts. In actual practice, these individual receipts are grouped into a bank deposit that consists of funds from several customers. By using the Undeposited Funds account as a holding account, your accounting for customer receipts can match actual practice and simplify bank reconciliations. A customer receipt results in a debit to Undeposited Funds pending deposit in a bank account. Receipts from several customers can be grouped by clicking on the Banking->Make Deposits menu selection and selecting those receipts that make up the total deposit. Making a bank deposit in this manner results in a credit to the Undeposited Funds account and insures that the transaction recorded in your bank account register matches the actual deposit made to the bank. If customer receipts had not been first put in Undeposited Funds as a holding account, each individual receipt would appear as a deposit in the bank account register. That doesn’t match actual practice and complicates bank reconciliations because the amounts recorded in the bank register won’t match what appears on the bank statement.

In order to use the Undeposited Funds account, you first need to enable this preference. Click on the Edit->Preferences menu selection to open the Preferences window. Click on the Sales & Customers sub-menu on the Company Preferences tab and check the box on the Use Undeposited Funds as a default deposit to account. Note: Enterprise Solutions users will find this preference on the Payments sub-menu.

To display the transactions in the Undeposited Funds account, first click the Lists->Chart of Accounts menu selection (or use the keyboard shortcut Ctrl + A). Double click on the Undeposited Funds account to display the register for that account. Alternately, you can select the account in the list and use the keyboard shortcut Ctrl + R or click the Activities button and choose Use Register on the pop-up menu.

You can safely rename the Undeposited Funds account that QuickBooks automatically creates without changing the function of this account. Likewise, simply assigning the name Undeposited Funds to an account won’t by itself cause it to behave like this special account. Depending on preference settings, QuickBooks creates and assigns special account types to certain general ledger accounts, and these special account type settings aren’t clearly marked in the program.

A common QuickBooks bookkeeping problem can occur if the Use Undeposited Funds as a default deposit to account is selected but deposits are not made using the Banking->Make Deposits function. In that situation, customer AR reports will be accurate because customer receipts have been recorded, but the bank balance will be inaccurate because those payments have not been grouped into bank deposits and recorded in the bank account. Examining the Undeposited Funds register will usually reveal the source of the problem. The Undeposited Funds account balance should only reflect those funds that have been received by a company but not yet deposited in the bank. If the account balance reflects an unusually high balance, that indicates that either funds aren’t being deposited in a bank account immediately – or that some of the required processing steps when using the Undeposited Funds account have been skipped.

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