You have finally decided to join the 85% of small business owners who use QuickBooks for their accounting system. You have installed it, created your company file and begun working in it. It seems simple enough, your Home Page has a flow chart that shows you the order you need to perform tasks. Your forms, like the invoice and check, are familiar looking. Just fill in the form and QuickBooks takes care of posting everything to the correct accounts. So much easier than pen and paper.
QuickBooks does a lot of behind the scenes work for you so you don’t have to worry. Ah, but depending on how you have set up your file and the preferences (Edit > Preferences), you may find yourself worrying. You have looked at your reports and something doesn’t quite seem right. Your sales are too high and you have a balance in the Undeposited Funds account.
Now you may be wondering what that account is and why it has a balance. This account is automatically created when you set up your company file. You don’t have to use this account. If you want to use it then go to Edit > Preferences > Payments. Click on the Company Tab. Mark the box next to Use Undeposited Funds as a default deposit to account.
This account functions as a holding account for the payments you have received. When you receive payment for your goods or services (using either the Receive Payment or Sales Receipt form) a debit for that amount is posted to the Undeposited Funds account. A credit is either posted to Accounts Receivable (if using the Receive Payment form) or to an income account (if using the Sales Receipt form). This money has not yet been deposited to your account. In other words, it has not been posted to your bank account.
To record the deposits, and clear out the Undeposited Funds account, use the Make Deposit form. When you click on this a window will open on top of the deposit window. It will list all the payments that have been received but not yet deposited. You want to make a deposit that will equal the exact same amount that was deposited into your bank account. For example, there are three payments showing, one for $100, another for $200 dollars and another for $50. You have already taken the $100 and $200 to your bank. The total amount of that deposit was $300. You want the amount you record in QuickBooks to be a total of $300. Mark those two deposits and click on Save. Now your deposit window shows those two deposits with a total of $300. Make sure you are using the correct bank account and enter the date of the deposit. The Undeposited Funds account will be credited for $300 (leaving a balance of $50) and the bank account will be debited $300.
When you go to reconcile the account, instead of seeing two transactions, one for $100 and another for $200 you will see only the one deposit for $300. This will also be the amount on the bank statement. This makes reconciling the account so much easier.
Look for my next article that will explain how to fix a balance that should not be in the Undeposited Funds account.