Why the account exists
Customers might pay by check or card in several payments, and your bank deposits them in one lump. QuickBooks keeps the individual payments in Undeposited Funds until you bundle them into a deposit that matches the bank. That lets your bank feed match one deposit line to the combined amount.
Make a deposit from the holding account
Open New, choose Bank deposit, and select the payments that arrived in the same deposit. Check the total equals what the bank shows. Add any processor fee as a negative line with an expense category, or cash back lines if needed. Save, and then match the deposit in the bank feed.
Processor payouts
Card processors often pay out daily or weekly, with fees already removed. If you record the invoice payments, then create a deposit that combines them and adds a negative fee line, the net deposit will equal the bank amount. If the payout covers a day that crosses two payout dates, check the processor report for the correct batch rather than guessing.
Fixing a balance that will not clear
A leftover balance usually has a few causes: payments recorded but never deposited, deposits recorded without selecting the payments, or income entered twice, once as an invoice payment and again as a direct deposit. Run the Undeposited Funds register, sort by date and see which payments remain. Match them to bank deposits one at a time. Remove duplicates carefully and keep notes.
Better habits
Choose to deposit to the bank directly for payments that arrive on the same day, such as cash received in the office, when you do not need bundling. Avoid using the holding account as a permanent parking spot. The balance at the end of each month should be small and explainable, or zero. If you see a large number sitting for months, it may mean your revenue and your bank account are out of sync, and it deserves a cleanup before tax time.
Include a quick check in your monthly close: open the account, confirm that only the last few days of payments are listed, and note any item older than a week.
Example of bundling card payments
Suppose three customers paid by card on Monday for 400, 250 and 150 dollars, and the processor deposited 780 on Wednesday after 20 dollars in fees. In the deposit screen, select the three payments totalling 800, add a negative 20 line for fees, and the deposit equals 780. The bank feed line then matches in one click.
If the numbers do not add up, the processor report will show a refund or a held amount that explains the difference.
Worked example with numbers
Five customers pay by card, $120, $200, $85, $310 and $150, totaling $865. The processor deposits $865 less fees of $25.50, or $839.50. Create one bank deposit selecting all five, then add the $25.50 fee as a negative line to merchant fees. The bank deposit of $839.50 matches the feed and Undeposited Funds returns to zero.
Mistakes that cost money
Leaving payments in the account. Depositing one at a time so the bank amount never matches. Forgetting processor fees.
Check your work
The Undeposited Funds balance should be near zero after deposits.
Common questions
Is Undeposited Funds an income account?
No, it is a current asset account that holds money until it is deposited.
Can I turn the feature off?
Yes, in the sales settings you can choose a different default deposit account, though bundling then requires another method.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.