undeposited funds

What Is a Payment Item and How Should I Use One?

Chief Mechanic · August 23, 2010 ·

A Payment Item is a type of Item maintained on the Item list, which is accessed on the Lists->Item List menu selection.

See our article on all of the Item types supported by QuickBooks for more information.

A Payment Item is used to record a partial payment on an Invoice or Statement made before the original sale. Payment Items shouldn’t be used on other sale documents, such as Sales Receipts or Credit Memos.

Payment Items are typically used by firms seeking the ability to create a single customer document (the Invoice) that reflects the net balance due on the grounds that a single document showing payments deducted reduces customer confusion and improves collections.

QuickBooks Enterprise Solutions 10 Payment Item

Typically, recording a customer payment via the Customers->Receive Payments window is used to record a full or partial payment received at or after the time of sale. Recording a Payment Item on an invoice is an alternate to this approach to reduce an invoice balance. One common use of a Payment Item is to record a deposit or retainer.

A Payment Item is designed to give you the flexibility to control the account to which it is deposited and to specify the associated Payment Method to enable the payment to be grouped with other similar items into a bank deposit. To specify the deposit account, either select Group with other undeposited funds or select Deposit To and pick an account from the pull-down list of accounts.

The screenshot below shows a Payment Item being recorded in the Create Invoices window. The Payment Item is recorded as a negative number and reduces the Balance Due on the invoice.

QuickBooks Enterprise Solutions 10 Payment Item on Create Invoice

One downside to using a Payment Item is that any reference number information, such as a customer’s check number, is not recorded in the typical field for such information, the No. field. Instead, the No. field is populated with the Invoice number.

For those who favor using a Payment Item, the advantage of being able to produce a single document (the Invoice) that reflects a customer’s net balance outweighs these shortcomings.

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What Is the Undeposited Funds Account and Why Should I Use It?

Chief Mechanic · July 25, 2010 ·

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.

QuickBooks Premier 2009 Undeposited Funds Preference

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.

QuickBooks Premier 2009 Undeposited Funds Register

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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How Do I Make a Bank Deposit?

Chief Mechanic · July 25, 2010 ·

Always keep in mind that your goal when recording a bank deposit in QuickBooks is to match what you record to what you actually deposit. That means matching the transaction date, the amount, and the bank account to which you make the deposit.

The steps to make a bank deposit in QuickBooks depend on your setting of the Undeposited Funds preference.

For most QuickBooks users, the Undeposited Funds preference is enabled, so we’ll cover that scenario first.

Enabling the Undeposited Funds preference means that your default “deposit to” account is your Undeposited Funds account. Customer payments and sales receipts are temporarily accumulated in the Undeposited Funds account until you combine them into one or more bank deposits. Funds reach the Undeposited Funds account in one of 3 ways:

recording a customer payment on the Customers->Receive Payments menu selection
recording a Sales Receipt
recording a General Journal entry

QuickBooks Enterprise Solutions 10 Payments To Deposit

Funds in the Undeposited Funds account are combined into a bank deposit on the Banking->Make Deposits menu selection. If you select this menu choice and your Undeposited Funds account contains transactions, QuickBooks will automatically open the Payments to Deposit window, as shown nearby.

This window will contain all items available to deposit. In this window, choose the item(s) that actually make up the bank deposit being recorded. In our example, we chose 1 item. Buttons are available to Select All items and Select None, which performs an “undo” function. When you’ve selected the item(s) to deposit, click Ok to return to the Make Deposits window. If you want to change the items selected from among the available items to deposit, simply hit the Payments button at the top of the Make Deposits window. If your deposit will only contain items from the Undeposited Funds account, it’s a good idea to verify that the Payments Subtotal matches the amount of the deposit.

In addition to items gathered from Undeposited Funds, you can include other deposit items, as well as deductions for fees, such as incoming wire fees. You always want to have the amount of the deposit match the amount recorded by the bank. If your bank combines a fee with a gross deposit and records a net deposit amount, you’ll want to include the fee on the Make Deposits window. If your bank records a gross deposit and a fee as 2 separate transactions, you don’t want to include the fee on this window. In our example, even though we’re depositing 1 check, we’ve added a $10 bank service charge expense to demonstrate how a deposit deduction is recorded.

You can also receive cash back from a deposit, which will be deducted from the deposit. You should only use this feature if your bank reports the net amount of the deposit as 1 transaction. If you use these fields, you’d normally enter a petty cash account (effectively a transfer), an expense account (such as a travel advance), or an equity account (a return of equity). While recording cash back from a deposit on the Make Deposits window can save a step, we generally discourage using this method. It’s preferable to record the gross deposit and cash withdrawal separately because you’ll preserve more transaction details of the cash withdrawal by doing so.

QuickBooks Enterprise Solutions Make Deposits

Before saving the deposit, confirm the Deposit To account, the transaction Date, and the Deposit Total match your actual bank activity. Optionally, you can record a Memo for the deposit.

Once you’ve verified the deposit details, click the Save icon, the Save & Close, or Save & New button.

You can also print a Deposit Slip and a Deposit Summary from the Print icon. If you opt to print information associated with the deposit, QuickBooks will first save it. A Deposit Summary is simply a summary report of the items and cash back (if any) on the deposit.

QuickBooks Enterprise Solutions 10 Deposit Summary

A Deposit Slip is designed to work with pre-printed QuickBooks deposit slips to automate the step of filling out a deposit slip form before you take the deposit to the bank. However, using a pre-printed deposit slip imposes some restrictions on the deposit function: all deposit items must have a Cash or Check payment method, and every deposit item must have a positive amount. The screen shots below illustrate these restrictions.

QuickBooks Enterprise Solutions 10 Deposit Warning

Recording a deposit if you don’t use the Undeposited Funds account follows most of the procedures described above. If you previously had the Undeposited Funds preference enabled and disable it while you have items in the Undeposited Funds account, QuickBooks will automatically open the Payments To Deposit window. If there are no transactions in the Undeposited Funds account, QuickBooks will present the Make Deposits window and allow you to manually enter the items for a deposit.

For each deposit item, you’ll specify who provided the funds (Received From), the general ledger account (From Account), any applicable Memo, the Chk No., the payment method (Pmt Meth.), and Amount. If class tracking is enabled, you’ll be able to specify the Class for each deposit item as well.

Once you’ve verified the deposit details, click the Save icon, the Save & Close, or Save & New button.

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What Is a Sales Receipt and When Should I Use One?

Chief Mechanic · April 3, 2010 ·

In QuickBooks a Sales Receipt is a form to simultaneously record credits increases) to the accounts associated with the Items entered on the Sales Receipt and a single, offsetting debit to either the Undeposited Funds account (if that preference is selected) or another user-selected account, which must be either a Bank, Accounts Receivable, or Other Current Asset account. It’s typically used when a customer pays in full at they time they receive a firm’s goods or services. Because Items can be associated with liability accounts (such as a current liability account for customer deposits), sales receipts can also be used to record funds received from customers that increase a firm’s liabilities.

Recording a Sales Receipt is accessed on the Customers->Enter Sales Receipts menu selection. It’s similar to the Create Invoices function in that it can record a sale transaction, but unlike an unpaid invoice, which is sent to an Accounts Receivable account and increases a customer’s outstanding balance, the Sales Receipt is paid in full and doesn’t change the customer’s balance.

When a Sales Receipt is saved, a credit to the account associated with each item is recorded for the amount of that line item. In the example below, the account associated with the Item “Upfront Deposit” will be credited $1000. A single, offsetting debit is recorded in an asset account, depending on your setting for the Use Undeposited Funds as a default deposit to account preference. For more information, see our article on setting the Undeposited Funds preference.

If that preference is checked, the Enter Sales Receipt form will appear similar to the one below. You won’t be asked in which account the single debit should be recorded, because it will automatically be recorded in the Undeposited Funds account.

QuickBooks Premier 2009 Enter Sales Receipt Use Undeposited Funds

On the other hand, if that preference is turned off, you can select the asset account to which the debit is recorded, provided that the asset account is either a Bank, Accounts Receivable, or Other Current Asset account.

QuickBooks Premier 2009 Enter Sales Receipt Do Not Use Undeposited Funds

Here’s a saved Sales Receipt in the transaction list for a customer in the Customer Center:

QuickBooks Premier 2009 Customer Center Sales Receipt

The Transaction Journal can report the debits and credits made by QuickBooks for the Sales Receipt recorded. The Transaction Journal can be displayed by clicking the Journal button on the Enter Sales Receipts form or clicking Ctrl + Y while that form is open.

QuickBooks Premier 2009 Sales Receipt Transaction Journal

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undeposited funds

Accounting

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Intuit