Undeposited Funds in QuickBooks: What It Is and How to Clear It

Undeposited funds is a holding account in QuickBooks that stores customer payments you have recorded but not yet deposited at the bank. It exists so that five separate payments received on Monday can be recorded on Monday and still match the single lump deposit that hits your bank on Wednesday. It should empty out every time you record that deposit, and a balance that survives past the deposit date means something did not get grouped correctly.

Last updated July 2026.

Intuit now labels the account "Undeposited Funds (also called Payments to Deposit)" in QuickBooks Online, so if you went looking for it under the old name and found the new one, they are the same account doing the same job. What follows applies to both QuickBooks Online and QuickBooks Desktop, with the differences called out where they matter.

What are undeposited funds?

Undeposited funds is a temporary asset account that holds money you have received but not yet taken to the bank. When you record a customer payment in QuickBooks and choose undeposited funds as the destination, the payment reduces accounts receivable and increases undeposited funds. Nothing has touched your bank balance yet. Later, when you record the bank deposit and tick the payments that were included in it, the total moves out of undeposited funds and into your checking account.

The reason the account exists is that customers pay individually and banks record deposits in batches. If you sent each payment straight to checking, your ledger would show five deposits of $840, $1,200, $310, $2,050 and $600 while the bank statement shows a single deposit of $5,000. Nothing would match, and the reconciliation would become an exercise in mental arithmetic every month. Undeposited funds is what lets the two sides line up.

What account type is undeposited funds in QuickBooks?

Undeposited funds is an Other Current Asset account. It is a default account QuickBooks creates for you, it appears on the balance sheet under current assets, and its normal balance is a debit. It is not a bank account, it is not cash in the accounting sense of money you can spend, and it is not accounts receivable, because the customer has already paid. It sits in the gap between the two.

Because it is a default special account, QuickBooks will not let you delete it, and in QuickBooks Online you generally cannot make direct journal entries into it the way you can with an ordinary account. That restriction is deliberate and it is also why clearing an old balance takes more than a quick adjusting entry.

Is undeposited funds a clearing account?

Yes. Undeposited funds is the most common clearing account in small business accounting, and it behaves exactly the way a clearing account should: money goes in on a known trigger, comes out on a known trigger, and the account returns to zero. That is different from a suspense account, where the balance is there because nobody has worked out what the transaction is yet. The difference between a clearing account and a suspense account matters here, because a lingering undeposited funds balance is nearly always a process problem rather than an unanswered question.

Should undeposited funds be zero?

At month end, in most businesses, yes. The legitimate exception is payments genuinely received near the period end that had not reached the bank by the last day of the month: a check that arrived on the 31st and got deposited on the 2nd belongs in undeposited funds at month end and is completely correct. Anything older than a few days is not a timing item, it is an error waiting to be found.

The practical test is age rather than amount. Run the account and sort by date. If everything in there is from the last week and you can point at the deposit that will clear it, you are fine. If there are entries from March sitting in a July balance sheet, your revenue is likely overstated, your cash is understated, and there is a good chance some of those payments were also recorded a second time when the bank feed brought the real deposit in.

Why do I have a balance in undeposited funds?

There are five common causes, and they leave different fingerprints.

The second cause is by far the most damaging and the most common. Someone records the customer payment correctly, then the bank feed shows the deposit a few days later, and rather than matching it to the existing entry they click Add and categorize it to sales income. The bank now reconciles perfectly, the profit and loss shows the revenue twice, and undeposited funds keeps the difference forever. If your undeposited funds balance grows steadily month after month, look here first.

How to clear undeposited funds in QuickBooks Online

Work through it in this order. Skipping to the last step is how people end up writing off real money.

1. Run the account detail. Go to the chart of accounts, find Undeposited Funds or Payments to Deposit, and run a report on it. Sort by date, oldest first. You now have your work list.
2. Separate current from stale. Anything from the last week that has a real deposit on the way is fine, leave it. Everything older is what you are actually fixing.
3. Find the matching bank deposit for each stale item. Open the bank register for the days after each payment date and look for a deposit of the same amount, or one that includes it as part of a larger total. Most items resolve here.
4. Check whether that deposit was already recorded another way. If the bank deposit exists but was categorized straight to an income account from the feed, that is the duplicate. Delete the feed-created transaction, then create a proper Bank Deposit that ticks the original payments, and match the feed entry to it.
5. Rebuild any deposit whose total does not tie. If a deposit was for $5,000 but only $4,400 of payments were ticked, the $600 is still sitting in undeposited funds. Edit the deposit and include the missing payment.
6. Deal with what is genuinely unidentifiable last. A very small residue may have no matching deposit at all, usually a payment recorded twice or one recorded against a customer who never actually paid. Correct the source transaction rather than forcing the balance, and if you truly cannot identify it, document what you checked before writing it off and have somebody senior approve it.

QuickBooks Desktop follows the same logic through Banking, then Make Deposits, where anything in the Payments to Deposit window is your undeposited funds population. The mechanics differ, the diagnosis does not.

Why is my undeposited funds negative?

A negative undeposited funds balance almost always means a deposit was recorded that took more out of the account than was ever put in. The usual version is a deposit entered manually with the undeposited funds account chosen as the source, without any payments ticked against it. Another version is a deposit that was recorded twice, once properly and once from the bank feed, with both pointed at undeposited funds.

Find the deposits pointing at undeposited funds that do not have payments attached to them. One of them is the culprit, and it usually shows up quickly because the amount will match your negative balance exactly or be a round number nobody would deposit by chance.

How do you stop undeposited funds building up again?

Three habits fix this permanently. First, never click Add on a bank feed deposit that represents customer payments. Use Find Match, every time, so the feed connects to the deposit you already recorded. Second, group deposits in QuickBooks the same way you group them at the bank: one deposit slip equals one deposit entry. If you take three envelopes to the bank on the same day and the bank records three deposits, record three. Third, check the account monthly rather than annually. A two-item problem takes five minutes. A two-year problem takes a weekend and usually involves reopening closed periods. That last habit is the hardest one to hold across a book of clients, which is why reconciliation software for bookkeepers is built around checking the same handful of accounts on every file each month rather than trusting anyone to remember which client was drifting.

If you are reconstructing an old balance and the only record of what was in a given deposit is a folder of paper remittances, it is worth pulling those totals into a spreadsheet before you start ticking, because matching against a sorted list of amounts is far faster than flipping through paper twice.

Does the same problem happen with Stripe and PayPal?

It happens worse, because processor payouts arrive net of fees. A day of sales totaling $5,000 arrives as a payout of $4,855 after a 2.9 percent fee, so nothing matches on amount and there is no clean deposit to tick against. If sales receipts are set to deposit to undeposited funds, that $145 difference is left behind on every single payout, and the account accumulates a balance that is really just unrecorded processing fees. The fix is to record the deposit at the gross amount with a negative fee line, so the net ties to the bank while the fee lands in expenses. Our page on Stripe payment reconciliation covers the payout structure in more detail, and if the payments come through Shopify or a marketplace rather than a single processor, ecommerce reconciliation deals with the same gross-to-net problem across several payout schedules at once.

What this looks like once it is automated

Undeposited funds is a bookkeeping problem created by a timing gap, so it responds well to software that understands timing gaps. Reconciler connects your bank accounts, payment processors, and QuickBooks read-only and matches the two sides continuously, which means a payment sitting in undeposited funds with no corresponding deposit shows up as an exception within days instead of surfacing at year end. It also catches the duplicate case directly, because a deposit that appears both as a matched payment group and as a categorized feed entry is exactly the pattern discrepancy detection is looking for.

Nothing is posted on your behalf. You get the list, you decide what each item is, and you make the correction in your own books. If clearing accounts are a recurring theme in your close, the wider picture is on balance sheet reconciliation software, and if the close itself is the thing running long, month end close software covers which kind of tool actually shortens it. For the reconciliation itself, there is a step by step walkthrough of bank reconciliation in QuickBooks Online, and if your reconciliation is out and you cannot find why, start with why a bank reconciliation will not balance.