Using the Undeposited Funds Account for Bulk Deposits
Overview
The Undeposited Funds account is a temporary holding place for client payments before you deposit them at your bank. Using the Undeposited Funds account keeps your books aligned with your actual bank deposits when you receive multiple payments and deposit them together.
Understanding Undeposited Funds is crucial for businesses that receive multiple checks or cash payments and make batch deposits. When you deposit several payments at once, your bank shows one lump-sum deposit, but your accounting system records each payment separately—creating a mismatch that makes reconciliation difficult.
The Undeposited Funds account acts like a virtual "desk drawer" where you collect payments until you're ready to take them to the bank. This ensures your books match your bank feed exactly, making reconciliation seamless and your financial records accurate.
You'll need this when you collect multiple client payments throughout the week and deposit them all at once, receive both cash and checks that you batch together, or want to avoid headaches when reconciling your accounts.
⚠️ Important: The Undeposited Funds account is not a real bank account—it's a tracking tool that helps organize payments before they hit your actual bank account.
🔍 What's Your Situation?
📋 Scenario 1: Weekly Batch Deposits
You collect multiple checks and cash payments throughout the week and make one trip to the bank on Fridays to deposit everything together. Example: Sarah, a consultant, receives a $2,000 check Monday, $1,500 cash Wednesday, and a $3,000 check Thursday. She deposits all $6,500 at once on Friday.
→ Use Method 1: Undeposited Funds Account
💰 Scenario 2: Mixed Payment Types
You receive different types of payments (checks, cash, money orders) from various clients and deposit them together for convenience. Example: Tom, a contractor, gets three different payments totaling $4,800 and deposits them as one combined deposit to save trips to the bank.
→ Use Method 1: Undeposited Funds Account
🔍 Scenario 3: Forgot to Use Undeposited Funds Account
You already made a bulk deposit and it downloaded to your bank feed as one transaction, but now you need to match it to multiple individual invoices. Example: Lisa deposited $5,200 from four different clients, but forgot to set up Undeposited Funds first. Now she needs to split the bank transaction.
→ Use Method 2: Split a Bulk Deposit
📊 Scenario 4: Reconciliation Problems
Your bank shows one deposit but your accounting shows multiple separate payments, making it impossible to reconcile properly. Example: Mike's books show three separate $1,000 payments, but his bank shows one $3,000 deposit, causing reconciliation headaches.
→ Use Method 2: Split a Bulk Deposit
How Undeposited Funds Account Works
The Problem:
Your books: Three separate payments ($1,000 + $1,500 + $2,000)
Your bank: One combined deposit ($4,500)
Result: Records don't match, reconciliation is difficult
The Solution :
Step 1: Payments go to Undeposited Funds account (temporary holding)
Step 2: You physically deposit payments at the bank
Step 3: Bank deposit transfers FROM Undeposited Funds TO bank account
Result: Your books show one $4,500 deposit that matches your bank exactly
Setting Up Your Undeposited Funds Account
The Undeposited Funds account is not created by default—you'll need to set it up once:
Go to Add Account
Select Add Manual Account
Choose Account Type: Other Business
Select Undeposited Funds
Name it "Undeposited Funds"
Once created, this account is available whenever you need to record payments before depositing them.
How to Handle Your Bulk Deposit Payments
Choose your approach based on timing and your current situation. If you're planning ahead and haven't made the deposit yet, use Method 1. If you've already made the deposit and it's downloaded to your bank feed, use Method 2.
✅ Method 1: Using the Undeposited Funds Account (Recommended)
Best for: Businesses that regularly batch deposit multiple payments and want seamless reconciliation.
When applying payments to invoices:
Record the payment but select Undeposited Funds as the deposit account (not your bank account)
Repeat for each payment you'll deposit together
Make your physical bank deposit with all the payments
When the lump-sum deposit downloads to your bank feed, categorize it as a Transfer FROM Undeposited Funds
✅ Result: Your books show one combined deposit that perfectly matches your bank statement.
Example Workflow:
Monday: Client A pays $1,000 → Record payment to Undeposited Funds
Wednesday: Client B pays $1,500 → Record payment to Undeposited Funds
Friday: Client C pays $2,000 → Record payment to Undeposited Funds
Friday: Deposit all three ($4,500 total) at bank
Saturday: Bank deposit downloads as $4,500 → Transfer from Undeposited Funds
✅ Method 2: Split a Bulk Deposit (After the Fact)
Best for: When you forgot to use Undeposited Funds but need to match a downloaded bulk deposit to multiple invoices.
When you have a bulk deposit that needs to be split:
Open the downloaded bank transaction
Click the three dots → Edit Transaction
In the Transaction detail, click Split under Category
For each payment in the deposit:
Enter the correct Business Income category
Enter the amount for that specific payment
Check the box for Invoice Payment
Save the splits
Assign each split to the correct invoice
Example: Your bank shows one $4,500 deposit, but it represents three separate client payments:
Split 1: $1,000 for Client A's invoice
Split 2: $1,500 for Client B's invoice
Split 3: $2,000 for Client C's invoice
Key Benefits of Using Undeposited Funds
🎯 Perfect Reconciliation
Your books match your bank statement exactly
No more puzzling over why amounts don't line up
Reconciliation becomes quick and straightforward
🔍 Cleaner Financial Reports
Bank deposits appear as single line items, matching your statements
Individual invoice payments are still tracked separately
Financial reports show accurate deposit timing
⏰ Flexible Banking Schedule
Collect payments all week, deposit when convenient
No pressure to make daily bank runs
Batch deposits save time and bank fees
💡 Best Practices for Undeposited Funds
Consistent Usage
Decide on your approach and use it consistently (don't mix methods)
Train anyone who handles payments to follow the same process
Set up the account once and use it for all batch deposits
Timing Management
Don't let payments sit too long in Undeposited Funds—deposit regularly
Match deposits promptly when they download to avoid confusion
Consider security when holding multiple checks or cash amounts
Record Keeping
Make deposits within a reasonable timeframe (same week if possible)
Keep deposit slips that show the breakdown of individual payments
Double-check totals before making the deposit to catch errors early
Troubleshooting
If Undeposited Funds balance seems wrong, review recent transactions for errors
Don't use Undeposited Funds for single payments going directly to the bank
Clear old items from Undeposited Funds if you find forgotten entries