The Undeposited Funds account is automatically created and cannot be deleted. This account is used in QuickBooks Online to hold money that you have received from you customers but have not yet deposited into your bank account. I like to call this your virtual bank deposit slip.

Deposit Sales Receipts & Invoice Payments to Undeposited Funds

Whenever you receive more than one customer invoice payment, or create more than one sales receipt, it gets deposited to Undeposited Funds first. Then you make a Bank Deposit in QuickBooks Online to the receiving account of all the money that you deposited into your account by day. Be sure to enter the correct deposit date and deduct any Cash Back amounts such as an amount you pocketed or deposited into another account, or are an Owner Equity Draw transaction.

Deposit with Cash Back to Savings

Fees Deducted From Deposits are Entered as Negative Amounts

Note that you may need to Add funds to this deposit in QuickBooks Online when there is a deduction from your deposit total for an expense. An example of this would be when a bank fee is deducted from your net deposit amount. This would be entered as a negative amount to the expense as seen in the below snapshot. It is important to do this so that the total bank deposit can be matched to the money received when it comes into your bank feed.

Deposit with Fee Deduction Added

Money Added to Deposits as Expense Credits are Positive Amounts

You may need to add money to a bank deposit that is not a customer invoice payment or sales receipt. An example of this would be if you subleased a portion of your office space to someone for an agreed upon monthly subtenant rent payment amount. When you deposit this money with your customer payments, it needs to be accounted for within the bank deposit total. This type of deposit would be a credit to your office rent account, reducing your office rent expense each month, as the expense is now shared with your subtenant. Another example would be if you add an amount that you want to invest as the owner of your business. This type of deposit would be categorized to an Equity account such as Owner Investment. Another scenario would be if a business partner gave you cash to reimburse you for a business expense that you paid for. This cash deposit would be a credit to the expense account. This is not uncommon for buildouts and start-up expenses that are shared between business partners.

Expense Credit Funds Added to Deposits
Regina Pitts
Regina PittsChief Financial Officer
Member of the QuickBooks ProAdvisor Program

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The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.