How to Reconcile Undeposited Funds in QuickBooks Desktop

Quick Answer: Undeposited Funds is a holding account, not a bank account, so you never reconcile it against a statement. You clear it by opening Make Deposits, selecting the payments that went to the bank together, and saving one deposit whose total equals the deposit printed on your bank statement. Once each bank deposit is recorded this way, the checking reconciliation matches and Undeposited Funds drops to the payments you have not banked yet.

QuickBooks Desktop sends customer payments and sales receipts to Undeposited Funds by default, and they stay there until you record a bank deposit. If nobody does that step, the checking account shows no income while Undeposited Funds keeps growing, and the bank reconciliation cannot match. The fix is to group payments into deposits that mirror the bank statement.

The symptom: deposits on the statement with nothing to tick

You open Banking > Reconcile for the checking account and the statement shows a $3,180.00 deposit on the 14th. In the Reconcile window there is no $3,180.00 line. Instead, the Balance Sheet shows Undeposited Funds holding several thousand dollars, some of it months old.

That combination nearly always has the same cause: the payments were received in QuickBooks, but the deposit that moved them into the checking account was never recorded. The money is in the bank. QuickBooks still thinks it is sitting in a cash drawer.

The opposite symptom also happens. The checking register already shows the deposit, entered by hand or added from a bank download, and Undeposited Funds still holds the original payments. Now income is counted twice: once on the invoice payment and once on the separate deposit.

Why do payments pile up in Undeposited Funds?

Intuit's article Deposit payments into the Undeposited Funds account in QuickBooks Desktop describes the default behavior:

• When you use Receive Payments against an invoice, QuickBooks puts the payment in Undeposited Funds automatically.
• Sales receipts also go to Undeposited Funds by default.
• The preference that controls sales receipts is under Edit > Preferences > Payments > Company Preferences: "Use Undeposited Funds as a default deposit to account". Unticking it lets you pick a deposit account on each sales receipt.

The design is deliberate. Banks often post several checks or a day's card batch as one deposit. Holding payments in Undeposited Funds lets you combine them into one record that matches the single figure on the statement. The account only becomes a problem when the second half of the workflow, Make Deposits, is skipped or done inconsistently.

Typical reasons it is skipped:

• A new staff member receives payments but was never shown the deposit step.
• The owner enters deposits straight into the check register from the bank's website, not realizing the payments already exist.
• Bank downloads add deposits as new transactions instead of matching them to existing payments.
• Card processor payouts arrive net of fees, so the amount never matches the payments and nobody knows how to bridge the gap.

How do you clear Undeposited Funds so the bank reconciliation matches?

Work from the bank statement, not from QuickBooks. The statement tells you which payments the bank grouped together.

1. List every deposit on the statement for the month with its date and amount.
2. On the Home page, select Record Deposits (the Banking menu's Make Deposits opens the same window).
3. In the Payments to Deposit window, tick the payments that make up the first statement deposit. Sorting by payment method or date helps when there are many. Select OK.
4. In Make Deposits, choose the checking account in the Deposit To dropdown.
5. Set the date to the date the bank posted the deposit and add a memo, such as the deposit slip number.
6. Confirm the deposit total equals the statement amount to the cent, then select Save & Close.
7. Repeat for each deposit on the statement, then reconcile the checking account.

Only payments currently in Undeposited Funds appear in the Payments to Deposit window, as Intuit's Record and make bank deposits page points out. If a payment you expect is missing, it was posted directly to a bank account or was already deposited.

Matching deposit totals when they will not add up

The awkward cases are the ones where no combination of payments equals the bank figure. This table covers the common ones.

The last row is the double-income problem. Do not leave both the payments and the hand-entered deposit in place, and do not delete the customer payments, because that reopens the invoices. Rebuild the deposit so the payments flow through it.

Finding what is still sitting there

Intuit suggests a quick check: open the Chart of Accounts, right-click Undeposited Funds, choose QuickReport, and filter to Cleared: No. The list that remains is every payment QuickBooks thinks you have not banked.

Go through it oldest first. For each item, look for the money on a bank statement. Three outcomes are possible:

1. You find it inside a statement deposit. Record that deposit as above.
2. You find it already in the checking register as a separate deposit. Fix the duplicate as in the table.
3. You cannot find it anywhere. The payment may have been voided by the bank, entered in error, or never received. Check with the customer and your accountant before deleting or adjusting anything, since the fix may affect a closed year.

For a long backlog, it helps to have the bank's deposits as a sortable list rather than reading them off PDFs. You can export from online banking if the bank offers enough history, or convert the old statement PDFs to Excel. QuickBankConvert produces Excel and CSV files on its free account, three statements a month, which covers a short catch-up; see pricing for larger volumes. Filter the result to positive amounts and you have every deposit for the period in one column.

Is a journal entry an acceptable shortcut?

You will see advice to clear an old Undeposited Funds balance with one journal entry to the bank account. It makes the account read zero, but the customer payments remain marked as undeposited, the Payments to Deposit window keeps offering them, and the checking reconciliation still has no deposit lines that match the statement. Use a journal entry only for a balance your accountant has agreed to write off, typically errors from years that are already closed and filed.

Reconciling after the cleanup

With deposits recorded, return to the checking reconciliation. Each statement deposit now has one matching line to tick. If a month is already reconciled with a forced adjustment, you may need to undo that reconciliation and redo it so the new deposits clear in the right period. The routine itself is described in how to reconcile in QuickBooks Desktop, and the general principles in the bank statement reconciliation guide.

To keep it from happening again, make recording deposits part of whoever takes the bank run, and review the Undeposited Funds QuickReport before every month-end reconciliation. Anything older than a week deserves a question.

Related guides

• How to reconcile in QuickBooks Desktop
• QuickBooks import and integration options
• Importing bank statements into QuickBooks