Bookkeeping Made Easy – Invoices, Payments, and Deposits
Bookkeeping | November 15, 2021 | By Brandon Briscoe
2. Create a Payment
When the payment is processed (check, ACH, credit card, etc.), then you want to head to the Receive Payment screen and be sure to select “Undeposited Funds” in the “Deposit to” dropdown (see screenshot below). Here’s what happens in QuickBooks when you do this:
1. Revenue stays the SAME (Profit & Loss)
2. Accounts Receivable goes DOWN (Balance Sheet)
3. Undeposited Funds goes UP (Balance Sheet)
4. Cash stays the SAME (Balance Sheet)
3. Create a Deposit
When the actual cash from the payment is deposited into your bank account (sometimes even grouped together with other payments), then you want to head to the New Deposit screen and be sure to select the payments included in that specific bank deposit (see screenshot below). This should match the actual transaction that will show up on your bank statement when you’re running your bank reconciliation later in the month. Here’s what happens in QuickBooks when do you this:
1. Revenue stays the SAME (Profit & Loss)
2. Accounts Receivable stays the SAME (Balance Sheet)
3. Undeposited Funds goes DOWN (Balance Sheet)
4. Cash goes UP (Balance Sheet)
When the above steps are followed and done in the correct order, you’ll be sure to avoid this costly Undeposited Funds error entirely. But done out of order or skipping steps completely can quickly start to build up your Undeposited Funds to a number that’s inaccurate and sure to cause issues throughout your financial statements.
To end, here’s a few more quick pointers to look out for:
1. It is also worth noting that you want to be very cautious with the Banking section when dealing with this process. Sometimes QuickBooks will suggest that you match a deposit to an invoice, just because the amounts are the same. This can be helpful, of course, but it can also cause a lot of assumptions to turn into errors if not handled with caution.
2. Remember that this is an issue that can very easily go undetected, since you can actually run your bank reconciliations successfully and not catch the mistake. This is because a payment sitting in Undeposited Funds will not actually show up in your bank account, only the deposit will… but if you hit a revenue account with that deposit versus close out the payment, you’ve kept your Cash balance accurate but your Revenue has now been duplicated. Crazy stuff, I know.
3. That said, if you’re wondering whether or not you currently have this issue on your hands, just open your Balance Sheet and see whether you have an Undeposited Funds account with a balance sitting there underneath your bank accounts (in the Asset section). If you see a dollar amount there that doesn’t seem to correlate to actual payments still in process, then you have an issue.
4. If you do have the issue, we recommend you open the “New Deposit” screen. This is the best place to view your Undeposited Funds that are still outstanding (your payments processed that were never tied to a deposit), as they’ll be listed there in the “Select the payments included in this deposit” section of the deposit.
5. If you realize that you have a clean up project on your hands, don’t worry. We have a team of dedicated bookkeepers and accountants standing by ready to help out. Simply book your free consultation to learn more about our services or send us a message to ask a quick question. With your finances made clean, you’ll be well on your way to running your business from a position of financial calm, clarity, and confidence.
Thanks for reading! And if you want more content like this, be sure to follow us on social media. We’re continually working to release more free content like this in order to help you move from cluttered to clean in your business. Until next time…
About the Author
Founder & CEO, Clean Finances
Brandon founded Clean Finances in 2015 after completing his B.S. in Economics from the University of Texas at Arlington while working as the Finance Director for two established nonprofit organizations. He lives in East Dallas with his wife, Becca, and their son, Daxton.
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