How Undeposited Funds Work in QuickBooks Online
- marketing90806
- 6 days ago
- 3 min read
If you’re a bookkeeper or small business owner using QuickBooks Online (QBO), chances are you’ve run into the Undeposited Funds account. It’s one of those features that often causes confusion—especially when things don’t match up. But when used correctly, it’s a powerful tool for making sure your sales match your actual bank deposits.
Let’s break down how it works, where things often go wrong, and how Level can help you stay on track.
What Is the Undeposited Funds Account?
Undeposited Funds is a special clearing account in QuickBooks Online. Think of it as a digital “drawer” that holds payments you’ve received but haven’t yet deposited into your bank. It’s especially useful for businesses that batch multiple payments into a single bank deposit—like a stack of checks or daily credit card sales.
Here’s how it flows:
Customer pays an invoice → the payment sits in Undeposited Funds.
You record a bank deposit → you group one or more of those payments together into a single deposit that matches your bank feed.
That deposit then gets matched to your bank statement, keeping your books clean and reconciled.
Apps That Use Undeposited Funds (Including QuickBooks Payments)
One of the most important things to know is that QuickBooks Payments—Intuit’s built-in payment processing solution—uses the Undeposited Funds account by default. When a customer pays via credit card, ACH, or Apple Pay through QuickBooks Payments, the funds are first recorded in Undeposited Funds. Then, once Intuit initiates the transfer to your bank, a deposit is created and matched.
This same process is often used by other third-party payment collection apps as well. Tools like:
Square
Stripe
PayPal
GoCardless
…often push payments into Undeposited Funds before batching them into deposits that hit your bank.
That means understanding Undeposited Funds isn’t optional—it’s essential if you use any integrated payment solution with QBO.
What Should (and Shouldn't) Be in the Undeposited Funds Account?
This part is critical: only payment transactions and deposits should ever be in the Undeposited Funds account. If you see journal entries, vendor bills, or any other transaction type in this account, that’s a red flag. It usually means something was misclassified or manually adjusted in error.
Even more common: bookkeepers get frustrated when QBO doesn’t auto-suggest a match between customer payments and bank feed deposits. In those moments, it’s tempting to just post the bank deposit directly as income to "Sales"—which leads to duplicate income because the original customer payment is still sitting in Undeposited Funds, unlinked and aging.
The Problem with Aged Payments in Undeposited Funds
Undeposited Funds is not a place for payments to linger. Payments sitting in this account for weeks—or worse, months—often signal a disconnect. These may be:
Legitimate payments never matched to a deposit.
Duplicated income (payment + separate sales deposit).
Forgotten transactions that were never fully recorded.
The longer they sit, the harder they are to reconcile.
How Level Helps: The "Aged Undeposited Payments" Rule
Level’s new bookkeeping rule, Aged Undeposited Payments in Undeposited Funds, automatically checks for payments that have been sitting too long in the Undeposited Funds account. If something's hanging around without being grouped into a deposit, we flag it.
This helps you:
Spot and correct mismatches early.
Avoid duplicated sales entries.
Ensure your books reflect your actual bank activity.
Whether you’re managing multiple clients or keeping your own books, this rule acts like a second set of eyes—one that never blinks.
Clean Books Start Here
If you’ve ever spent hours unraveling Undeposited Funds errors, you know how much time and headache it can save to get it right the first time. Level keeps your QuickBooks Online data clean, so you can focus on higher-value work.
Start your free trial today and let Level’s automated bookkeeping assistant review your QuickBooks file daily—so errors never have a chance to pile up.