
Nowadays, most people in the USA use online accounting software or tools for growing their business called QuickBooks. This software offers scalability and integrity to ease the work of both small and medium-sized businesses (SMBs). Now, QuickBooks Online (QBO) is operated digitally by almost all customers to manage their bank accounts such as undeposited fund accounts and so on. To effectively manage the accounting system, in this blog, we will explain the undeposited funds in QuickBooks, the purpose of using it, how it is carried out, what are the advantages, and some common mistakes to always remember and avoid while using it
QBO has unique and diverse features that could help to effectively manage the deposit of payments when multiple payments are received and deposited together. However, undeposited funds play a vital role in managing and operating QuickBooks accounting software smoothly. With a user-friendly dashboard and other additional tools, QBO also helps to streamline the financial processes of businesses or enterprises.
What is an Undeposited Funds in QuickBooks Online?
Undeposited funds account is a valuable asset to all businesses, that manage their accounting system online in digital form. This account holds the payments of customers in QB until and unless the customers deposit the payment in the bank. If a customer has deposited a slip in the bank, he or she can merge all the payments into a single payment record. So, QBO helps in matching the customer payments from the bank records.
This funds account is reflected on the balance sheet of the company while preparing and reconciling the bank statement for the financial year. Also, many times undeposited funds may show higher amounts on the balance sheet due to various errors such as income being recorded twice, making the wrong deposit, credit card payment failure, or a check bounce because of insufficient funds, etc.
So, it is essential for all businesses to properly prepare the balance sheet, update the undeposited fund account, and then pay taxes accordingly. It serves as a crucial tool to effectively manage the financial activities of a business.
What’s the Purpose of Using Undeposited Funds in QuickBooks?
The purpose of using undeposited funds in QBO is to keep a record of all customer payments till the payments are physically deposited in their bank accounts. The banks often combine all the customer payments in the form of bill payments and sales receipts that are deposited into a single transaction or record.
In banks, there is a separate desk for managing the amount of funds in the form of checks of customers. It is the place where the checks are deposited and then converted into cash, but before depositing it timely.
The primary use of undeposited funds in QBO is to hold both the customer’s bill or invoice payment and sales receipt, which are combined into one record or transaction. This account is just like a drawer or lockbox, where customers keep all their payments in one place before going for depositing them into their bank accounts. To match the undeposited fund amount, a customer must deposit the amount in the bank by filling the deposit slip with the use of the QBO tool. Therefore, the software helps to combine all customers’ payments to match their undeposited funds account.
How to clear Undeposited Funds in QuickBooks Online?
As we mentioned above, undeposited funds hold the payment of customers in QBO unless the customer deposits the payment in the bank. So, it is significant to aggregate all customers’ payments into a single transaction before depositing them into the bank account. This could be done only by monitoring and maintaining undeposited funds in QuickBooks.
There are three general steps for undeposited funds that should be carried out in QBO. These are as follows:
Receive Customer Payments
When banks receive payments from their customers, first of all, they have to choose “Undeposited Funds”, which shows as the deposit bank account. This means that instead of directly depositing the funds into their bank account. QB Online will hold their payments in the name of an “Undeposited Funds” account until the customer is ready to deposit all payments into the bank. Follow the steps to receive customer Payments:
- Firstly, click on the New Button.
- Go to the Receive Payment Option.
- From the drop-down window select the appropriate customer.
- After that add the checkmark for the invoice.
- Choose the Undeposited Funds from the Deposit to drop-down option.
- Complete the form by filling rest details.
- Lastly, click on the save and close button.
Record Bank Deposits
After receiving all the customer payments a record is maintained for all the cash deposited into their bank accounts. This could be done by creating a bank deposit transaction using the QBO software. While recording the bank deposit, it is necessary to select all the customer payments from the Undeposited Funds account which will assist the customer who wants to include the amount in the deposit account. Follow the steps to record bank deposit:
- Select the account from the drop-down menu.
- To make a group of transactions, press the checkboxes for every transaction.
- Assure that the deposit slip amount is updated with the total amount of chosen transactions.
- Click on the save and close option.
Bank Reconciliation Statement
When customers reconcile their bank accounts in QBO, then all the bank deposits where customers’ transactions are recorded should appear on their bank statement. This helps to make sure that the QuickBooks Online records match with actual bank transactions. Using an undeposited fund account will help to streamline the complete accounting process by allowing customers to make group payments together before depositing them into their bank accounts.
- Navigate the accounting Menu.
- Choose the charts of accounts.
- It is mandatory to Choose the undeposited Funds accounts in the particular list.
- Select the View Register option.
Note: it also helps in maintaining accuracy in the bank’s financial records by focusing that each bank deposit matches with the customer’s bank statement.
What are the Advantages of Having Undeposited Funds in QuickBooks Online?
Several benefits of using undeposited funds in QuickBooks Online will help customers to efficiently and effectively manage their bank accounts. The advantages of having undeposited funds in the software are mentioned below:
Make Bank Reconciliation Statement (BRS) Easy
The process of reconciling bank statements will streamline the financial business operations that are related to undeposited funds. Also, we mentioned above that all customer payments are merged in one place on a separate desk in undeposited funds before being deposited into their bank account. So, it makes it easy to reconcile the QuickBooks Online records with their bank statements.
Provide Accuracy in Record Keeping
To track cash flow transactions, it is necessary to properly maintain the bookkeeping record of cash flow undeposited funds in QBO. Whenever customer payments are received, firstly they are recorded in the form of undeposited funds until physically deposited in their bank accounts. Laterally, reconcile the BRS with the customer’s bank account.
This will provide accuracy and help in maintaining a clear track record of all customer payments that are received but not deposited.
Prepare Batch Deposits
Make a separate bank deposit in QBO instead of recording all customer payments in one place. This will help to merge all payments into a single bank deposit. Thus, preparing batch deposits will save time and overcome discrepancies in the financial accounting records.
Remove Audit Trail
Achieve a clear track record of audit trail, can be done by using undeposited funds in QBO. Customers can easily trace all their payments and easily see when their payments were deposited into their bank accounts.
Maintain Reliability in Financial Reporting and Budgeting
Maintaining financial reports in QBO will help to define the exact state of finances according to budget constraints by accurately recording bank deposits using undeposited funds. This will help business owners make correct decisions and improve accuracy to maintain both stability and reliability in their businesses.
Common Pitfalls to Avoid While Using Undeposited Funds Account in QuickBooks Online
While using the Undeposited Funds feature in QBO, business owners and customers should be very cautious and avoid common mistakes that are described below:
- Improper Allocation of Funds: Instead of directly depositing the funds of undeposited funds or misallocation of funds into the customer’s bank account can lead to confusion and incorrectness in financial reporting and budgeting.
- Failing of Payments: In undeposited funds accounts, if customer payments fail before depositing payments into their bank accounts then it can lead to inconsistency and mismatch in financial accounting records.
- Skipping Bank Reconciliation Statement: If business owners skip or neglect to reconcile their bank statements after receiving the payment and recording bank deposits, then it can result in unnoticed errors or discrepancies in their financial records.
Conclusion
Most business enterprises can streamline their accounting process by completely understanding the use of undeposited funds as described above. Hence, QBO reduces errors in financial reports and improves accuracy if properly utilizing the resources required for undeposited funds. To effectively and efficiently manage undeposited funds in QuickBooks Online, it is important to properly maintain the accuracy of financial accounting records as well as to enhance cash flow management.
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