Undeposited funds

Accounting and Bookkeeping
1

In a bookkeeping file, there is the debit balance in undeposited funds which has been there for some time.

The bookkeeping system generates three transactions:

1. Invoice
DT A/R XXX
CT Sales XXX

2. Payment
DT Undeposited Funds XXX
CT A/R XXX

3. Deposit
DT Bank XXX
CT Undeposited funds XXX

What remains are the Bank DT and the Sales CT which makes sense.

However, in this file, there is a debit balance remaining of around $3k in undeposited funds which would lead me to believe there may be some missing deposits at quick glance.

There are literally hundreds of transactions I would have to go through all to track this discrepancy and the business owner no longer uses the system which creates undeposited funds transactions. This is how I know it’s a discrepancy because the debit balance still remains.

Most of these transactions are via Square and a few with Quickbook payments.

Has anyone else gone through similar?

2

Yup. QB is a piece of crap. (Personal opinion - I absolutely detest its method of handling deposits.)

Simplest approach: if the funds are not receivable (ie there is no record of them) write 'em off vs sales - they are likely duplicated.

Best approach: Export the account to Excel. Match transactions. Start with this for a VERY LIMITED period to see if you can identify a “pattern” of how the entries came to be.

For example: Undep funds had Dr balance $1,000.00 at start of a month; balance at end of month is Dr $1,237.50. Cross-tick all the transactions and movements in the month. Something will show up. Either someone is double-booking sales, misposting deposits or stealing money.

Or, like one of my old clients…her receptionist was keeping deposits for months in a filing cabinet b/c she didn’t like going to the bank, and there were just very small amounts…but they accumulated over time to a rather significant amount. Busted!

There is really no substitute for learning forensics.

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3

If there is a balance in undeposited funds then those transaction would not be “cleared”.
To find them bring up the registry for the undeposited funds account, click on quick report => customize report => filters => cleared and select “no”. Once you have this you can start to look for duplicates etc.

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4

@SmallBizGuy Thanks for the tips
@jimt WOW! This tracked the balance down to the penny! From hundreds of transactions to look at to now less than 40. Thank you!

I am using QBO so I clicked Accounting → Accounting History (undeposited funds) and I filtered for Not Reconciled.

The next question is what do I do with these transactions?
Many of them are:
Payment transactions
DT Undeposited Funds XXX
CT A/R XXX
& some are Deposits (which have been reconciled to the bank and cannot be deleted):
DT Bank XXX
CT Undeposited funds XXX

Currently, A/R has a balance of $0. So if I delete those Payment transactions it will throw off the AR balance.

Usually when I look over an account for not reconciled transactions its the bank account or credit card. Generally, I delete those transactions - most of the time they are duplicates.

How have you historically approached this?

5

Check for duplicates in the applicable customer ledger - the above shows collection of an A/R, but the client may have recorded a “Sales Receipt” for the same amount, which is actually duplicating the amount of revenue. If so, offset the Undeposited Funds against Sales or Revenue.

Ask the client for deposit slips, or see if you can match the deposit to multiple A/R collections. Alternatively, some clients use the Deposit function for revenue they have collected without having posted a sales invoice. In any case you will need the client to tell you what those deposits are made up of.

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6

Thank you all!

7

@healthymanccc

When you make a sale and that sale is paid in full using a merchant processor then usually the

deposit amount = paid sales amount - processing fees - returns or refunds - errors or shorts.

Posting payments as either sales receipts or paid invoices and linking them to undeposited funds is best way to manage the Intuit QB GL, transaction journal, and reports.

When receiving payments:
Post the payments against sales receipts or invoices as applicable.

If you are capturing all sales using Stripe then you need to reconcile your Stripe income and deposit reports against your QB sales and payment reports.

All of the following are posted using the deposit payments procedure:
Post the merchant fees as your POS fees. Most post this as an expense. Some post it to COGS.
Post the returns and refunds as negative sales or as a sub-account to sales.
Post the errors and shorts to your rounding or shorts expense account.

If you have an error in the undeposited account then the source of the error could be any one or more of the following:
Incorrect invoice amount due to discount or error.
Incorrect sales receipt amount due to discount or error.
Incorrectly applied received payment.
Failure to post the POS expense.
Failure to post a return or refund.
Failure to post the short or error.

You can reconcile your Stripe account manually or use and app such as A2X.

8

This is the Intuit support article for using QBO’s undeposited funds correctly. This lists several suggestions as to how to debug this error.

9

It takes some time, tips, tricks, and workflow procedure to learn how to use and clean up Undeposited Funds. It is worth learning best practices, clean-ups, and work-arounds.

I regularly attend and recommend QB training courses from Intuit ProAdvisors, Hector Garcia, and QB Power Hour, and many others. It took me a couple years of training and working out the kinks of my workflows before I finally landed on a basic workflow that works for me. In my case the complications arose when my client’s business invoicing, receiving payments, and recording transactions were outside my full understanding or when I was unfamiliar with their payment POS or gateway. Have patience. Persevere. There is usually a fix and a best practice. Yes, it is not always straight forward. However sometimes the QB file is so totally messed up that you have pick an end point and start a new file. This is often when a client or inexperienced bookkeeper messed up sales tax and/or simply downloaded the bank records directly into bank accounts and expense records from bank or credit card downloads with rhyme or reason and adjusted balances to force a reconciliation. Then sometimes the files are so badly out of balance that it would mean a complete redo. In some cases the client may prefer to bit the bullet and start a new file with best practice procedures.

With each POS or payment gateway it may take time to learn how to properly reconcile those transactions. For these I suggest Veronica Wasek to start or Teresa Slack, Financly for advanced product based ecommerce reconciliation with apps. https://academy.financly.ca/

There are many, many possible reasons that Undeposited Funds can have errors.
They can vary by:
Industry - professional services, retail, restaurants, etc.
Types of invoices - ie sales, retainers, installments, credits, etc
Contracts or Engagements and timing of payment - prepaid, installments, discount on prepaid, cancellation fee, etc.
Refunds and returns.
Payment types and gateways - cash, check, POS, etransfer, exchange, etc.

See below for some tips, tricks, and how to videos.

How to clean up Undeposited Funds in QuickBooks Online
by Veronica Wasek and Andre

Tips for taking on a massive Undeposited funds cleanup in QBO
by Veronica Wasek

How to Clean up Undeposited Funds in QuickBooks Online - My Cloud Bookkeeping

How to Fix Undeposited Funds QuickBooks Online

Hector Garcia is great but fast. This is a public video from his advanced QBO course.
QuickBooks Online: Cleaning up old uncleared transactions from bank or credit card reconciliation.

10

I made it a habit not to use the undeposited funds part of QuickBooks. With that being said. So, if I basically if we have 800K in undeposited funds still lingering around. Someone stole that money and diverted it to another bank account and new enough on how to alter the account so they wouldn’t get caught. I don’t see this phenomenon any longer popping up, so I gather I plugged my leak.

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