QuickBooks Tip: Clean up and Fix Undeposited Funds

QuickBooks Tip: Clean up and Fix Undeposited Funds

One of the most common mistakes people make with QuickBooks involves Undeposited Funds.  Do you have a growing balance in Undeposited Funds?  Do you have lots of payments in Undeposited Funds?  Have you tried to fix it with a Journal Entry and discovered the payments are still showing up to be deposited? (you can’t fix Undeposited Funds properly with a Journal Entry in QuickBooks).

I created this quick video to explain the problem and more importantly how to fix Undeposited Funds.

I hope this helps you clean up and fix Undeposited funds in QuickBooks.

52 thoughts on “QuickBooks Tip: Clean up and Fix Undeposited Funds

  1. Geoff H

    There’s no way to do it correctly. Undeposited funds is the only option. when I try to select the correct account for the funds in the deposit, the accounts are all there, it makes no sense why quickbooks forbids selecting any of them, and says I have to delete the payment and re-enter it. When I try that t just goes back into undeposited funds again. My register and splits and balance sheet are all fine. It seems like a bug in the software to me.

  2. Richard Foote

    Thanks, this has been plaguing me since my conversion to QBO 18 months ago. In desktop I could take care of this, but the conversion left soooo much messiness. Yes, I know, I did it myself. I don’t do my own plumbing anymore, maybe one of these days I will get expert accounting help too. 😉

  3. Marilyn Boyd

    i tried to clean up the undeposited funds as depicted in the video however when i went to reconcile the checkbook there was the amount that had been in the undeposited funds acct. all it did was move to the reconciliation window in the checking account. can’t figure out whats wrong as I did put the services account into the account field of the deposit window as you said. I’m flummoxed again. grrr…..

  4. Jackie

    Hi Michelle, On my trial balance report, I have over $6k in undeposited funds. How do I clear this when there are no deposits or payments that need to be accepted in the record deposit section.

    1. Michelle Long Post author

      I’m sorry I can’t answer without being able to get into the details to research what is going on in the undeposited funds account — where did the amount come from, etc.

  5. lowellmartin77

    My daughter bought a company. The previous owner used quickbooks to track sales and expenses but didn’t use the checkbook. We hoped to simply import their data into a new version of QuickBooks. However there is 960,000 of undeposited funds. My initial idea was to create a negative starting balance in the checkbook to offset this then deposit the funds leaving me with the actual checkbook balance. Will this work?

  6. Traci M.

    Hi Michelle,

    A comment you replied to earlier said the most you found was $15k in undeposited funds.

    I got you beat: $1,010,090.12.

    I have some client training to do.

    1. Robin S

      This is a great tutorial! Any suggestions for just the opposite issue, I have one years worth of deposits recorded in the check register going into undeposited fund account. No sales receipts ever entered. Should I create a yearly sales receipt and code that to an income account? Think that would clear it and put everything where it should be?

    1. Sarah Dublin

      I have this same problem. I have AJE from 2008 that was done to “correct” the undeposited funds. Can I get rid of this if I don’t know what income it originally pointed to or do I have to notify their CPA?

  7. Elise

    We had a worker that I paid as a vendor all of 2014. Then my supervisor said I needed to give that person a W-2 so I did that and entered a lump sum check, grossing up the tax amounts the entity would owe. But now I have multiple entries for that personal pay and it’s throwing off my registrar. I would ideally like to keep both for our records. I reconciled the bi-weekly payments but the lump sum is not reconciled. Should I void all the bi-weekly payments, leaving a note of the amounts so it is still in the record and then reconcile the lump sum. The lump sum has all the tax info so I cannot void that one. I just don’t want to void the bi-weekly checks if there is a reason to keep them. They will still be viewed as void with the note on my QB.

  8. Kathy

    Hi Michelle –
    I have a client that tops it all! They have 192,000 sales receipts that are undeposited from the last 3 years… They just did “transfers” out of undeposited to the checking account.

    I am trying to clear this out, however I keep locking up in the Make Deposit Window.

    Any suggestions?

    1. Michelle Long Post author

      Wow — the most I found before was only about 15,000 or so. We had to make the deposits in batches until finally we could select all. In your case, you may need to decide which is more cost effective — to try to fix it or start a new file. Good luck.

      1. Kathy

        Hi Michelle,
        We decided to clean up all of the Undeposited funds in batches using a 12/31/14 deposit date in an Accountant’s copy dated 1/31/15. The changes however DID not generate in the Transfer File.

        Any suggestions on why?

  9. Jessica Canepa

    Michelle,

    Great video! I have a slightly complicated version of this issue. My business is in Mexico. I recorded a sales receipt in the amount of $1,162.50 USD, but the client ended up deposited the equivalent in pesos ($15,112.50 pesos). The “Record Deposits” option wouldn’t let me deposit an amount in USD into my peso bank account because the currencies didn’t match. It suggested I do a transfer or a journal entry. So, I recorded a transfer from “undeposited funds” into my peso bank account. That worked for the bank deposit, but left the amount in USD in “undeposited funds” and left the amount in pesos (negative) in the “undeposited funds” window too. And, the transfer didn’t show up on my Customer Deposits report. I’m thoroughly confused!

    Can you help? Thanks a million!

  10. Kim

    I have a slightly different scenario and perhaps it is my inexperience. I collected payments but did not deposit the funds directly to the bank account in the form of a deposit. I used a journal entry to deposit the funds to my bank account. Now I have a credit balance in undeposited funds. Is there a fix for this? I a super frustrated. Thank you for any help you can give me!

  11. Amber Dodsworth

    I have a different situation that probably arises from journal entries in the past being entered to the undeposited funds account. Currently the balance sheet shows a balance of $236.00 in the undeposited funds account and but there is nothing to deposit. I am trying to clean up the books for a daycare that has been in operation for several years. The year end accountants have never tried to fix it in fact they have provided journal entries to be posted to that account directly. I have a new accountant for this year but I am trying to give them the books as clean as possible.

    As this problem goes back over several years is there any way to correct this?

    Thanks

    1. Michelle Long Post author

      You’re right — JEs to undeposited funds never really fixes it. Without getting into the file to see exactly what is going on, it is hard to know how to fix it but I would be careful and not change prior year balances without discussing it with the accountant or tax pro first.

  12. Good Grief!

    Doesn’t help if the Undeposited Funds are YEARS OLD!

    Realistically, the only solution is to try to close everything into retained earnings, esp. if it’s not the CY’s entries.

    The Undeposited Funds issue is really for people who uses the accrual method/invoices. Otherwise, cash entries are easier to fix esp. if it’s entered manually as a deposit then reconciled “properly” with the online banking feature.

  13. Cindi Cochran

    Michelle – we are having problems cleaning up undeposited funds in Simple Start. It doesn’t seem to give you the same options in accessing the blank account line to create the negative entry. Do you have any suggestions?

  14. rena

    I am trying to delete sales receipts for which the $ was never received but am receiving an error message from QB and then the program automatically restarts. Can you help me resolve this please?

  15. Dale

    Thanks for posting this Michelle!
    I have slightly different scenario, but I think your fix applies. I had sales prior to setting up a dedicated business banking account that resulted in deposits into my personal account. I recorded these sales as “Sales Receipts” which as expected increased the “Undeposited Funds” balance. Is it appropriate to use an “Owners Draw” account as the negative offset to show the money as taken out of the business by me as the owner? I’ve done a test and the balance sheet looks OK with Assets = Total Liability and Equity after the transaction. But I’d like your take since this is essential a non-standard Debit/Debit transaction. Your take?

    1. Michelle Long Post author

      Yes, if you’re taxed as a sole proprietor, when you take money out of the business it is an owner’s draw (equity account). So the net entry should record it as income and owner’s draw.

  16. Steve Panovski

    I really appreciate this well put together tutorial. I was stuck on this issue for weeks and am very thankful that you were kind enough to post the solution. Thanks for sharing Michelle!

  17. Andrea Cellasio

    This was a great video. What if there is only 3 transactions sitting in Undeposited funds on 12/31/2013 because I recorded the deposit the next day on 1/1/2014. This would not usually be an issue except that 12/31/2013 is my year end so now my final trial balance has those numbers sitting in undeposited funds.

    One of the transactions was a receipt for an invoice, The other two were recorded directly to income as sales receipts.

  18. Julie Gutierrez

    Great video. Concise & easy to remember. It seems so simple…why didn’t I think of this?! Thank you Michelle.

  19. Jennifer

    I think I figured it out but please tell me I didnt mess anything up! I went in and received the payments.. then I went to the register and double clicked the deposit line.. I then clicked payments which brought me to undeposited funds and I put a check next to the payments that belonged in that deposit.. I did the split and took out fees because these were factored invoices.. that left me with a deposit too large so I had to delete the original entry made to make it the correct total. But when I saved and went back to the register it kept the deposit reconcilled as I wad hoping.

    I still dont know what to do with these journal entries sitting in undeposited funds tho.. im afraid to deposit all of them and duplicate something..

  20. Jennifer

    Hi there.. I am not an accountant but recently started as an operations manager and took over all of the books for my company.. previously his CPA made all of his entries so they did many things with journal entries.. I have journal entries showing in my undeposited funds and I am not sure how to clear those? In addition they made several payment entries to income without ever applying them to invoices. So now the income account is correct but it appears that we still have open invoices. We are about to do the tax return so how can I quickly go back and apply those payments to the invoices when they have already reconcilled.. it is difficult cleaning someone elses mess when youre not a CPA :/

  21. Tricia

    Hi Michelle:

    A client asked for help concerning undepoisted funds. When I looked at the balance in undeposited funds – current assets she only had $50.00 in it. I believe she is referring to the term undeposited funds showing up under the split column on her – Transaction Detail by Account report. Most of her entries have ‘undeposited funds’ in the split column. What exactly does the term undeposited funds mean on that report and do I have a problem with undeposited funds other that the $50.00? Thank you

    1. Michelle Long Post author

      The default is when you receive payment, it goes into undeposited funds. Then, when you record a deposit you select the payments to be deposited. This moves them from undeposited funds into the bank account (the 2 sides of the entry for the deposit). So, when you look in the bank register, you see the other side of the entry which is undeposited funds. That’s how it works — nothing to worry about.

  22. David Geller

    Hi Michelle
    I find the biggest reson for overstated undepoisted funds is when the client downloads activity from the bank. The deposits don’t match so they just enter the deposit in the bottom window of the bank download. This also gives them a negeative number in the Make Deposits window. Only way to correct that is to delete the downloaded deposit and try to balance and repalce them with what is the correct amount in the check regsiter.

    By the way, what program did you use to record your screen?

    Thanks

    David

    1. Michelle Long Post author

      @Christine — you need to investigate to see what happened. If Undeposited Funds is overstated, then something else is too. It could be an unearned revenue account or something else.

  23. Estelle

    Thank you so much for posting this. It is very helpful, however… what do you do when you have more than one checking account to deal with and the client has the payments received in undeposited funds but they also took out cash back, splint the deposit when they took it to the bank and don’t have the receipt to show what they did from the bank. Needless to say, it is very tedious to go through and try and balance the accounts…
    Any thoughts on how to address this type of issue in an easier manner?
    Thank you in advance for any assistance you can provide.

    1. Michelle Long Post author

      @Estelle — you’re right that is very tedious and there’s not a quick, easy way to fix it. At the bottom of the deposit window is a field to enter cash back from the deposit.

  24. Melissa

    I have a question similar to Kenneth…
    I’m trying to clean up the QuickBooks account my office has been using for years. There are 10 payments altogether from 2010 &2011. After watching your video I tried the steps you suggested and it doesn’t appear that the payments were ever put into the check register to begin with. I would like to still clear them out but don’t want to affect my register balance because I spent a lot of time going through half of 2011 and all of 2012 to reconcile that bank account since the previous office person left and my accountant said to make journal entries to then correct any outstanding discrepancies. So I have done that already. I’m new to QuickBooks since I started working at this company so I didn’t even realize that I should have cleared out these old undeposited funds probably before I started trying to fix all that was wrong with the check register! What is the best way to fix this?

    Your videos are great, I just wish I had discovered this website initially when I was trying to fix things!

    1. Michelle Long Post author

      @Melissa — without knowing exactly what has been done, it is hard to say for sure how to fix it. But, if JEs were entered trying to fix Undeposited Funds, then you probably need to delete (or void) them and fix it by depositing the payments. Otherwise the payment still pop up to be deposited.

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