What are undeposited funds?

Undeposited funds is an account in accounting software that represents payments received but not yet deposited to the bank, used to batch multiple receipts into a single deposit that matches bank records. For professional service firms, properly using undeposited funds simplifies bank reconciliation.

Key characteristics

• Holds payments before deposit

• Temporary holding account

• Cleared when deposited

• Matches deposits to bank records

• Should not carry a balance long-term

• Common in QuickBooks

Why it matters for professional service firms

Undeposited funds help match your records to actual bank deposits. Misusing this account creates reconciliation problems. Professional service firms should use undeposited funds properly, clearing balances when deposits are made and investigating any lingering amounts.

Real-world example

Amanda received 4 payments totaling $18,400, deposited together. Using undeposited funds: each payment was recorded to undeposited funds when received, then a single deposit of $18,400 cleared all 4 payments from undeposited funds to checking. The bank statement showed one $18,400 deposit that matched the books exactly. Monthly review ensured no payments lingered in undeposited funds.