Undeposited Funds on Balance Sheet - Accounting Software Secrets
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Undeposited Funds on Balance Sheet

Undeposited Funds on Balance Sheet

Undeposited Funds on Balance Sheet

Undeposited Funds is a special account created by QuickBooks as a clearing account for payments that have been received but not yet deposited into the bank account.  The easiest way to picture this account is as the top desk drawer.  As the money comes in each day, it is entered into the computer, and placed in the top desk drawer.  This happens all day long.  At the end of the day, the drawer is opened and money is scooped up and taken to the bank.  At that point, the make deposit function is completed in QuickBooks to pull the undeposited funds onto a deposit slip.  The total of this deposit slip should agree with the bank statement at the end of the period.

The problem occurs when the money is entered one day and the deposit is made on a different day.  During the interim, the amount will be in undeposited funds.  To correct the situation, the deposit date should be changed to agree with the received payment, resulting in a deposit in transit on the bank reconciliation.

Some accountants choose to edit the name to “Cash on Hand” to clarify what this account actually is.  The primary problem with this approach is that when the statements are issued, the account will appear in the Other Current Asset section, not with the bank accounts, and there is no way to change the account type.

That is the rational for the recommended approach of having the deposit date and receive payment dates match.

TIP: In the newer versions of the software it is possible to make a general journal entry to the undeposited funds account.  Just be sure to reverse the entry as of the first of the next period.


More information on this topic

Receiving Payments and Discounts

Reconciliation Issues