What is "Undeposited Funds" and why should you care?

"Undeposited Funds" is a temporary holding account on your balance sheet (note the word “temporary” ;).

You should care because it can hide a lot of errors related to revenue, oftentimes leading to overstated sales (meaning you’re going to overpay on your taxes!).

How does Undeposited Funds get off track? 

The source is almost always incorrect matching in QBO bank feeds. A lot of companies use third-party apps to run their business, like Job Progress/Leap, Clio, Housecall Pro, etc. These apps send data directly to Quickbooks. When the owner goes to enter in the latest bank transactions, bank deposits are supposed to be MATCHED to the sales data that was sent over by these apps. What often happens is these bank deposits are POSTED as new transactions instead of MATCHED, which leads to those sales being double counted. And if you’re not reconciling your accounts properly, you may not even notice an issue.

How you can tell if you have a problem?

Run a Balance Sheet for last year, click on Undeposited Funds, and look at the balance throughout the year. It should have money going in, and money going out. If the balance is just growing over time, you’re probably not matching properly and as a result, could be double counting your revenue. 

How to prevent issues?

Be careful when adding bank deposits in bank feeds. If your third-party app is sending sales data over to QBO, MATCH the bank deposit to the sales data instead of POSTING it as a new entry.

Monitoring Undeposited Funds doesn't have to be intimidating. If you notice you've got a problem, feel free to reach out. We'll be happy to help.