How to Clear/Delete Undeposited Funds in QuickBooks Desktop/Online?

Before diving into the process of managing undeposited funds, it’s crucial to understand their relevance in QuickBooks. The undeposited funds account is a vital feature that serves as a temporary holding area for payments and sales receipts you intend to combine before making a bank deposit. This guide will walk you through the concept of undeposited funds and provide detailed instructions on how to clear or delete them from your bank deposit in QuickBooks.

What are Undeposited Funds in QuickBooks?

In QuickBooks, the undeposited funds account is an automatically generated feature that acts as a virtual space for storing payment information received from clients. When a payment is made via check or any type of sale receipt, the amount is initially added to this account. This process is crucial for maintaining accurate financial records and facilitating proper reconciliation.

The easiest way to understand the Undeposited Funds account is to think of it as money that is still in transit. When a customer pays you by cash, check, or card, the payment may not reach your bank account immediately. Until you deposit that money, QuickBooks stores it in the Undeposited Funds account.

You can think of Undeposited Funds as a temporary holding area, similar to a cash drawer or deposit envelope used by businesses. Throughout the day, a business may collect several payments and then combine them into a single bank deposit.

Problems occur when these payments remain in Undeposited Funds and are never included in a bank deposit in QuickBooks. As payments continue to accumulate, your QuickBooks records no longer match your bank statement, leading to reconciliation issues.

Purpose of the Undeposited Funds Account

1. Temporary Storage: It holds invoice payments and sales receipts until you’re ready to deposit them into your bank account.
2. Payment Consolidation: Allows you to combine multiple payments into a single bank deposit.
3. Accurate Record-Keeping: Helps maintain a clear trail of incoming payments before they’re officially deposited.
4. Simplified Reconciliation: Makes it easier to match your QuickBooks records with your bank statements.

What Causes a Buildup in Undeposited Funds?

A buildup in the undeposited funds account can occur due to several reasons:

1. Incorrect Transaction Recording: Not following the proper procedure for recording money-in transactions.
2. Misclassification: Adding payments directly to income accounts instead of routing them through the undeposited funds account.
3. Delayed Deposits: Not regularly processing bank deposits in QuickBooks.
4. Overlooked Payments: Forgetting to include certain payments when making bank deposits.

How to Clear Undeposited Funds in QuickBooks Online

Before clearing or deleting entries, first confirm that the payments in Undeposited Funds have not already been deposited into your bank account. The right method depends on the situation: in most cases you simply combine the payments into a bank deposit. If a payment was routed to Undeposited Funds by mistake, you edit where it’s deposited. Deleting should be reserved for true duplicates only.

Method 1: Combine Payments into a Single Bank Deposit

Follow the steps below to combine multiple payments into a single bank deposit:

• Select + New, then under Other, choose Bank Deposit.
• From the Account dropdown, select the bank account where the money was actually deposited.
• In the Select the payments included in this deposit section, check the box next to each payment you want to combine. These are the payments currently stored in the Undeposited Funds account.
• Verify that the total amount of the selected payments matches your actual bank deposit or deposit slip.
• Select Save and close.

Once saved, QuickBooks moves the selected payments out of the Undeposited Funds account and records them as a single deposit in your bank account. This helps ensure that your QuickBooks records match the deposit shown on your bank statement, making reconciliation easier.

Method 2: Edit the “Deposit To” Account on the Payment

If a payment was accidentally deposited to the Undeposited Funds account and you do not plan to combine it with other payments, you can correct the transaction by changing the account where the payment is deposited.

Follow these steps:

1. Open Transactions and select Chart of Accounts. In some QuickBooks versions, you may need to go to Settings and then select Chart of Accounts.
2. Find the Undeposited Funds account in the list and select Run Report or Account History. This will show all payments currently stored in the account.
3. Locate and open the payment that you want to fix.
4. In the payment window, look for the Deposit to field. If it is set to Undeposited Funds, change it to the bank account where the money was actually deposited, such as your checking or savings account.
5. Select Save and close to save the changes.

Once you save the transaction, QuickBooks removes the payment from the Undeposited Funds account and records it directly in the selected bank account. This is the correct solution when a payment was sent to Undeposited Funds by mistake and does not need to be included in a combined bank deposit.

Method 3: Delete a Genuine Duplicate (Use With Caution)

Caution: Delete a transaction only if you are certain that it is a duplicate. A duplicate means the same payment was entered more than once in QuickBooks.

Before deleting anything, review your bank account and make sure the original payment has already been deposited and reconciled. If you delete a valid payment by mistake, QuickBooks will remove that income from your books, which can lead to inaccurate financial reports and reconciliation issues.

If you are unsure whether an entry is a duplicate, it is safer to use one of the earlier methods, such as creating a bank deposit or changing the deposit account.

To delete a duplicate payment, follow these steps:

1. First, reconcile the related bank account or review your bank statement to confirm that the payment has already been recorded and matched correctly.
2. Select + New, then choose Bank Deposit and open the deposit that contains the duplicate payment.
3. In the deposit window, select the customer’s name to open the payment transaction.
4. Review the details one final time to make sure it is truly a duplicate entry.
5. At the bottom of the payment screen, select More, then choose Delete.

After deleting the duplicate transaction, check the Undeposited Funds account again to confirm that only the correct payments remain.

Method 4: Dummy Bank Account Process

This approach uses a temporary account to clear undeposited funds:

1. Create a new “Dummy Bank Account” in your Chart of Accounts.
2. Use the Bank Deposits feature to transfer amounts from the Undeposited Funds account to the dummy account.
3. Create an Expense transaction to move the amount from the dummy account to the correct income account.
4. Verify that the dummy account balance is zero after these transactions.

How to Clear Undeposited Funds in QuickBooks Desktop  

Follow these steps to identify and clear payments stored in Undeposited Funds.

Step 1: Run a Quick Report to Identify Transactions Stuck in Undeposited Funds

Before fixing the Undeposited Funds balance, you first need to see which transactions are still sitting in the account.

Follow these steps:

1. From the Lists menu, select Chart of Accounts.
2. Locate the Undeposited Funds account in the list of accounts. Right-click on it and select QuickReport: Undeposited Funds. This report displays all transactions recorded in the account.
3. In the report window, select All from the Dates dropdown. This ensures that QuickBooks shows every transaction in the account, regardless of when it was created.
4. Next, select Customize Report, go to the Filters tab, choose Cleared, and set the filter to No. Then select OK.

The report will now show only the transactions that have not yet been cleared or moved out of Undeposited Funds. Review this list carefully to identify payments that still need to be deposited, corrected, or removed if they are duplicates.

Step 2: Combine Payments in the Make Deposits Window

After identifying the transactions in Undeposited Funds, the next step is to create a bank deposit for the payments that have actually been deposited at the bank.

Follow these steps:

1. Go to Banking and select Make Deposits.
2. The Payments to Deposit window will open automatically. This window displays all customer payments currently stored in the Undeposited Funds account. Select the payments that were included in the same real-world bank deposit, then select OK.
3. In the Make Deposits window, select the correct bank account from the Deposit To field. This should be the account where the money was actually deposited.
4. Verify the deposit date and make sure the total amount shown in QuickBooks matches your bank deposit slip or bank statement. The amounts should match exactly to avoid reconciliation problems later.
5. Once everything is correct, select Save & Close.

QuickBooks will remove the selected payments from the Undeposited Funds account and record them as a single deposit in your bank account. This helps ensure that your QuickBooks records match the deposits shown by your bank.

If you discover that a transaction in the deposit is a duplicate or was added by mistake, review it carefully before deleting it. Only remove a transaction if you are certain, it is not a valid payment.

Troubleshooting Common Undeposited Funds Problems

Below are the most common Undeposited Funds problems and how to fix them.

Clearing Undeposited Funds Without Creating Duplicate Deposits

Sometimes, users match a deposit from the bank feed before creating the actual bank deposit in QuickBooks. When this happens, the payment may still remain in the Undeposited Funds account even though the money has already been deposited into the bank.

A common mistake is to create a new bank deposit to clear the Undeposited Funds balance. However, doing so can cause QuickBooks to record the same income twice, resulting in duplicate deposits and inaccurate financial reports.

To avoid this problem, follow these steps:

1. Go to Transactions and select Bank Transactions (or Banking).
2. Open the Categorized tab, which shows transactions that have already been added or matched from your bank feed.
3. Find the deposit that was previously matched and select Undo in the Action column. This removes the match but keeps the transaction in your bank feed.
4. Next, create the deposit correctly by combining the payments currently sitting in the Undeposited Funds account.
5. Once the deposit has been created, return to the bank feed and match this deposit to the corresponding bank transaction.

This process clears the payments from Undeposited Funds, keeps your bank records accurate, and prevents QuickBooks from counting the same income twice. After the match is completed, the Undeposited Funds balance should be reduced or return to zero, depending on whether any other payments remain in the account.

Fixing a Negative Balance in Undeposited Funds

A negative balance in the Undeposited Funds account usually appears when a transaction was entered incorrectly, deleted, or linked to another transaction in an unexpected way. Unlike regular customer payments, a negative entry cannot be deposited by itself because bank deposits must have a total value of zero or greater.

To clear a negative balance, you need to create a deposit that offsets the negative amount with an equal positive amount.

Follow these steps:

1. Select + New and choose Bank Deposit.
2. In the deposit window, add the negative entry that is causing the issue.
3. Add a matching positive line for the same amount so that the total deposit equals zero.
4. Carefully review both lines and make sure they are assigned to the correct accounts. If the amounts do not offset each other exactly, the deposit will affect your bank balance and create accounting inaccuracies.
5. Select Save and close to record the deposit.

Creating a zero-value deposit removes the negative balance without changing the amount in your bank account. After saving, check the Undeposited Funds account to confirm that the negative entry has been cleared.

If the negative balance continues to appear, the original transaction may still be connected to another entry, such as a journal entry, deleted payment, or incorrectly linked deposit. In that case, review the transaction history to identify and correct the source of the problem.

Cleared Entries That Still Appear in the Deposit Window

Sometimes, payments still appear in the Bank Deposit or Make Deposits window even though the Undeposited Funds balance was cleared. This usually happens when a journal entry was used to clear the account instead of creating a proper bank deposit.

In this situation, QuickBooks balances the account but still treats the payments as undeposited.

To fix the issue:

1. Find the journal entry posted to the Undeposited Funds account.
2. Review it carefully and, if appropriate, delete or reverse it.
3. Create a proper bank deposit and deposit the payments into the correct bank account.
4. Save the deposit and verify that the payments no longer appear in the deposit window.

Important: If the journal entry affects a reconciled period, back up your company file (QuickBooks Desktop) or note the original entry details (QuickBooks Online) before making changes.

Clearing a Failed or Never-Received Payment

If a payment appears in Undeposited Funds but the money was never actually received, such as a failed card transaction or a canceled payment, you should not include it in a bank deposit.

Open the payment from the Undeposited Funds account and review it carefully. If the payment was entered by mistake and no income should be recorded, delete the transaction. If you need to keep the payment record, update the Deposit To field and select the appropriate account.

This removes the invalid transaction from Undeposited Funds and prevents it from incorrectly increasing the account balance.

How to Prevent Undeposited Funds Buildup

Follow these best practices to prevent payments from accumulating in Undeposited Funds.

Turn Off Undeposited Funds as the Default (Desktop)

If you do not want customer payments to automatically go to the Undeposited Funds account, you can change the default setting in QuickBooks Desktop.

Follow these steps:

1. Go to Edit and select Preferences.
2. Select Payments, then open the Company Preferences tab.
3. Uncheck Use Undeposited Funds as a default deposit to account.
4. Select OK to save the changes.

After this setting is turned off, QuickBooks will ask you to choose a deposit account when recording payments. This helps ensure that payments are deposited directly into the correct bank account and reduces the chances of transactions accumulating in Undeposited Funds.

Route Payments Correctly in QuickBooks Online

In QuickBooks Online, the Undeposited Funds account is a built-in system account and cannot be permanently deleted. Even if you remove it, QuickBooks automatically recreates it when needed.

To prevent payments from accumulating in this account, select the correct bank account in the Deposit to field whenever you record a customer payment. This sends the payment directly to the bank account instead of placing it in Undeposited Funds.

Some bookkeepers also rename the account to “DNU – Undeposited Funds” (Do Not Use) as a reminder for team members. This helps reduce posting errors and prevents unnecessary balances from building up in the account.

Best Practices for Managing Undeposited Funds

1. Regular Reconciliation: Perform bank reconciliations frequently to catch discrepancies early.
2. Timely Deposits: Process bank deposits in QuickBooks promptly after receiving payments.
3. Proper Classification: Ensure all incoming payments are correctly routed through the Undeposited Funds account.
4. Periodic Review: Regularly review your Undeposited Funds account for any lingering or unusual entries.
5. Staff Training: Ensure all team members handling financial transactions understand the proper use of the Undeposited Funds account.

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