An Undeposited Funds balance keeps growing when customer payments are recorded into it but never grouped into a bank deposit. The usual reason is that the money reached the bank through a different entry, often a deposit added from the bank feed as new income. The payment then waits for a deposit that will never be made. Each month adds a few more, and the account becomes a list of receipts that were already banked, recorded a second time somewhere else.
Clearing it safely means working through the balance payment by payment. A single journal entry is not the answer. This post covers QuickBooks Online: how the account is meant to work, how to find what is inside the balance, and how to clear each type of item without disturbing reconciled periods or filed returns.
How the account is meant to work
Undeposited Funds is a holding account. When you record a Receive payment against an invoice, or a Sales receipt, and choose Undeposited Funds in the Deposit to field, the money sits there until you record a Bank deposit. That deposit groups the payments that went to the bank together, so one bank deposit can carry three cheques and a cash takings total.
Until it is deposited, every payment in the account appears with a checkbox on the Bank deposit screen (+ New > Bank deposit). Ticking the payments and saving the deposit moves them out of Undeposited Funds and into the bank account.
In a healthy file, the balance at any month-end should be small and recent. It should be made up only of payments received in the last few days that have not yet been banked.
A note on the name: the account can be renamed, and in some files it appears under a different name, such as Payments to deposit. If you cannot find it, check the Detail type column in the Chart of accounts for Undeposited Funds.
Why the balance grows
Almost every stale item gets there in one of four ways.
- The bank feed deposit was added instead of matched. The customer's payment was recorded into Undeposited Funds. When the deposit later appeared in Bank transactions, someone categorised it as new income, or clicked Add, instead of matching it to the waiting payment. The bank balance is right, income is counted twice, and the payment stays in Undeposited Funds.
- The same receipt was recorded twice. A payment was recorded against the invoice, and the same money was entered again as a sales receipt, or as a second payment through the bank feed. One copy is genuine and the other inflates either the balance or customer credits.
- A processor payout was net of fees. Card or online payment processors pay out the gross receipts less their fees. If the deposit was recorded at the net amount without a fee line, the payments it was meant to clear do not add up, and the remainder is left behind.
- The payment never reached the bank. A cheque bounced, a payment was recorded against the wrong customer, or a receipt was entered in anticipation and never arrived.
Only the fourth group is money that is genuinely missing. The first three are recording problems, and each needs a different fix.
Find out what is inside the balance
Open the Chart of accounts, find Undeposited Funds and select View register. Sort it by date, oldest first. Each line is a payment still waiting to be deposited. Then work through them in order.
- Note the age profile. A handful of payments from the last week is normal. Payments more than a month old are the ones to investigate.
- Look for the deposit in the bank account. For each old payment, search the bank register for a deposit of the same amount, or a total containing it, within a few days of the payment date. If you find one categorised to an income account, that is group 1.
- Look for the twin. Search for another payment or sales receipt with the same customer and amount. If you find one, that is group 2.
- Check accounts receivable. In the A/R ageing summary report, a customer showing a negative balance or an unapplied credit often has the other half of a duplicate.
- Check the processor statements. If the business takes card payments, compare payouts to the payments they should have cleared. Gaps equal to fees are group 3.
Keep a working list with one row per payment: date, customer, amount, which group it falls into, and the evidence. That list becomes the cleanup memo.
Clear each item the right way
Group 1 — banked, but recorded as income from the feed. The bank-side entry is right in amount and date, and it may sit inside a reconciled period, so do not delete it. The approach we use is to open that deposit (where the feed entry was saved as a deposit transaction), tick the waiting Undeposited Funds payments that make it up, and remove the income line so the deposit total is unchanged. Where the entry cannot be edited this way, record a new bank deposit of the payments and remove the duplicate income, minding reconciled periods. The payments leave Undeposited Funds and the double-counted income is reversed in the period where it was overstated.
Group 2 — duplicate receipt. Decide which copy is genuine. Usually it is the one applied to the invoice. Then void or delete the other. Before you do, check whether the duplicate was a sales receipt that carried sales tax or VAT. If a return has already been filed for that period, removing it changes the tax figures on a filed return, so record the adjustment as your tax rules require rather than editing silently.
Group 3 — net processor payouts. Open the deposit and add a line in Add funds to this deposit: the processor or customer in Received from, a bank charges or merchant fees account in Account, and the fee as a negative amount. The deposit then includes the full gross payments and still equals the amount the bank received.
Group 4 — never received. Remove the payment, so that the invoice shows as open again, and check that it does. Then follow up on the receivable in the usual way. Do not leave it in Undeposited Funds as though it were cash.
Genuinely undeposited. Cash or cheques the business still holds should simply be deposited.
Why one clearing journal is the wrong fix
The quick fix is a journal entry that credits Undeposited Funds with the whole balance and debits an income account, Opening Balance Equity or a suspense account. It brings the account to zero, but it causes four problems.
- The payments are still there. A journal entry does not clear the individual payments. They keep appearing on the Bank deposit screen, inviting someone to deposit them again later.
- The duplicates are buried, not removed. If income was counted twice in a prior year, debiting income in the current year moves the error between periods. It does not correct it. Customer credits created by duplicate payments stay on the ledger.
- It cannot be audited. Nobody reviewing the file can tell which receipts the entry represents, or whether any were genuinely missing money.
- It can touch filed returns. Sales tax and income figures for closed periods are left inconsistent with the books that support them.
Sometimes, after a proper investigation, a residual of small and very old items remains that nobody can trace. In that case, clear it through a documented deposit or adjustment dated in the current period. Attach a schedule of the payments it covers, and get the business owner or their accountant to agree to it. That is a decision made after the work, not a substitute for it.
Keep it from growing again
- Match, do not add. When a customer deposit appears in Bank transactions, use Find match and select the waiting payments that make up the deposit, rather than adding it as new income.
- Record processor fees on the deposit, as above, every time.
- Deposit on a rhythm. Grouping payments into deposits should happen weekly, not when someone notices the balance.
- Check the balance at every month-end close. It should contain only payments from the last few days. Anything older is a question to answer before the month is closed.
Clearing Undeposited Funds is one of the cash checks in our QuickBooks cleanup checklist, and it is often where a failed reconciliation leads. If yours has stopped balancing as well, start with why a QuickBooks reconciliation stops balancing.
Wissen Solutions clears Undeposited Funds as part of our QuickBooks Online and offshore accounting services, for businesses and as white-label support for accounting firms. The workpapers list every payment cleared, the group it fell into and the evidence for it.
Sources (QuickBooks Online labels and behaviour checked 24 October 2026; Intuit updates the interface periodically and regional editions vary, so labels may differ slightly in your file)