When receiving a payment in Quickbooks, whether for an invoice or for a sales receipt, do you put the money into undeposited funds or straight into a bank account?

First off, this question may confuse you, because you may not even know that you have the option to deposit funds directly into a bank account without having to go through undeposited funds first.

*** NOTE: These videos will be much easier to watch if you set it to full screen. To full screen the video, click on the bottom right hand corner of the screen, on the two-way arrow.

Watch the video to see an explanation of the two methods: undeposited funds and directly into a bank account.

If you’re wondering about how to enable the option of depositing straight to a bank account OR if you want to disable that option, watch the video.

This next video, will show you an example of putting funds directly into a bank account. It will also gives some examples of putting money into undeposited funds first, and then depositing that money into a bank account.

When to put funds straight into a bank account

You only put funds straight into a bank account when it is a single item (check, cash, electronic transfer, etc…) that is to be deposited into the bank account.

  • EX: If you receive one check from one customer and put that straight into the bank, the total amount of that check will be what shows up on your bank statement

When to use Undeposited Funds to put money into a bank account

Essentially, you use undeposited funds for every transaction that where you are depositing more than one payment into your bank account. It is also good to remember, you can always receive money into undeposited funds first, and the record the deposit into a bank account, but you can’t always put money directly into a bank account. So, if there is any doubt, use undeposited funds.

Here are a few examples where you would use undeposited funds.

  • EX 1: You receive two checks from one customer for one invoice. You need to put into undeposited funds as it is two separate items you are depositing at the same time
  • EX 2: You receive checks from multiple customers and put all the checks in to your bank in one transaction
  • EX 3: You receive credit card payments from many customers throughout the day. You receive it all into your undeposited funds, and at the end of the day, record all those payments as one deposit using Record Deposit

Default Quickbooks method is Undeposited Funds

The default method in Quickbooks is to send all received funds into the undeposited funds account. I’m assuming this is because you can’t go wrong by putting all payments into undeposited funds and then using record deposit to put those funds into a bank account, but you can go wrong by depositing funds directly into a bank account.

How can you go wrong you ask? Well, let me tell you (or you can watch the video).

Let’s say you receive a check from a customer and in Quickbooks enter it as if you put it straight into your chequing account. That same day you receive another check from another customer and do the same thing, that is you enter it into Quickbooks as straight into your bank account.

When you go to deposit the check, you deposit both checks in the same envelope into your bank machine. On your bank statement, it will show the total amount of both checks, not the individual amounts of each check. When you go to reconcile, the amount on your Quickbooks bank record will not match the amounts on your bank statement.

If you had used undeposited funds, you could have recorded both checks in one deposit to your bank, and your problem would have been solved.

Oops, I recorded the transaction as directly to a bank account instead of into undeposited funds

If you made an error and put funds directly into a bank account instead of into the undeposited funds account, watch the video for the simple fix.

Go back to your Sales Receipt or Receive Payment (or whichever method you used to receive the payment) and switch your payment method to undeposited funds. Then go to Record Deposits and deposit the correct items.

If you haven’t deposited the items into your bank yet, and let’s take the two checks example, when you get to the bank machine deposit the checks one at a time, so that they show up as 2 separate transactions. This means using two separate envelopes and getting two separate deposit slips. This will show up on your bank statement as two separate transactions, thus avoiding a future reconciliation issue.

Don’t even ask me how many times I’ve searched for a reconciliation item because I received a payment straight to a bank account (thinking I’d save a step in Quickbooks) instead of using undeposited funds.

How do I make my received payments automatically go into undeposited funds

If your Quickbooks doesn’t automatically do this, that means you manually changed your setting. Don’t fear, it is an easy fix.

Go to Edit > Preferences. Select Sales and Customers and then choose the Company Preferences tab. Under Receive Payments, check the “Use Undeposited Funds as a default deposit to account” and all payments will automatically go into undeposited funds.