Undeposited funds can silently disrupt your finances. Watch out for these common issues:
- Duplicate entries inflating your income. Is your bookkeeper forcing the bank reconciliation by adding credit card payments received from customers from the bank feed and recording the amount to cash and sales? For accrual basis Companies it is important to coordinate with the accounts receivable person and obtain the merchant statement to ensure the amounts are applied to the customers invoice and then properly recording the batch deposit into the cash account so QBO will reclass the batch credit card deposit out of undeposited funds into the cash account enabling QBO to properly match the transactions during the bank reconciliation process.
- Delayed bank deposits messing with your cash flow. Still getting customer checks? After you receive the customers checks, do you apply the customer payment to the invoice timely yet there is a significant delay in depositing them into the bank?
- Incomplete records leading to inaccurate month end financial reports.
- Ballooning Undeposited Funds Balance: Over time, failure to correctly clear out undeposited funds can lead to a large, inaccurate balance that does not reflect true money in process or cash on hand. This can indicate underlying system problems or bookkeeping errors.
- Tax and Reporting Issues: An overstated undeposited funds balance can result in overreported profit, leading to potential overpayment of taxes and an inaccurate balance sheet.
Best Practices to Avoid Undeposited Funds Problems:
- Regularly review and reconcile the undeposited funds account—ideally on a weekly basis to ensure the account is zeroing out or if there is a balance due to timing differences that you know what they are from and that they clear out within a reasonable period thereafter (approximately 1-3 days).
- Use systematic workflows for receiving payments and grouping deposits.
- Double-check that payments are matched to bank deposits properly, especially when multiple payments are bundled together, and that the person preparing the bank reconciliation isn’t forcing the bank and books to match by simply adding the bank feeds to the books without investigating why there is no match when the books are on the accrual basis.
Links to QBO videos regarding the undeposited funds:
What’s the Undeposited Funds Account
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