Undeposited Funds in QuickBooks: How to Clear the Account

Short answer: Undeposited Funds is a holding account for customer payments you have recorded but not yet deposited. You clear it by creating a bank deposit that selects those payments: in QuickBooks Online go to + New, then Bank deposit, choose the real bank account, tick the payments that made up one physical deposit, and save. In QuickBooks Desktop it is Banking, then Make Deposits. The account should return to zero after every real deposit clears.

That is the mechanics. The reason people search for this is almost never the mechanics. It is that the balance sits at four thousand dollars, or forty thousand, refuses to move, and nobody can work out which payments are actually in there or whether the income has already been counted somewhere else. The balance is a symptom, and clearing it properly means finding the cause first.

What the Undeposited Funds account actually represents

Think of it as the drawer where checks wait before somebody drives to the bank. A customer pays an invoice on Monday. You record the payment, so the invoice closes and accounts receivable drops. But the money is not in the bank yet. If QuickBooks posted it straight to checking, your book balance would disagree with the bank for however many days the check sat in the drawer, and every reconciliation would need explaining.

Undeposited Funds solves that. The payment lands there, the invoice is marked paid, and the bank account stays untouched. When you actually deposit three checks together, you create one bank deposit in QuickBooks that pulls those three payments out of the holding account and posts a single line to checking, for the exact total the bank will show. Your register then matches the bank statement line for line, which is the entire point.

On the balance sheet it is an Other Current Asset. Money you own, in transit. A healthy balance is small and short lived. A balance that only grows is telling you the second half of the process is not happening.

How to clear Undeposited Funds in QuickBooks Online

Select + New, then under Other choose Bank deposit.
In the Account field at the top, choose the bank account the money went into. Getting this wrong is the most common mistake, and it is why some businesses end up with deposits in a savings account nobody uses.
The panel headed Select the payments included in this deposit lists everything currently sitting in Undeposited Funds. Tick only the payments that went to the bank together on one deposit slip.
Set the deposit date to the date the bank received it, not the date you are doing the bookkeeping.
Check the running total against the deposit slip or the bank statement line. It must match exactly.
Save and close.

Repeat per real deposit. The temptation with a large backlog is to tick everything and save one enormous deposit, and it is worth resisting. A single ten thousand dollar entry will never match the eleven separate lines on the bank statement, and you will meet the problem again during reconciliation with less information than you have now.

How to clear Undeposited Funds in QuickBooks Desktop

Desktop calls the same account Undeposited Funds and the workflow is nearly identical. Go to Banking, then Make Deposits. The Payments to Deposit window opens automatically with everything waiting. Select the payments in one physical deposit, click OK, confirm the bank account in the Deposit To field at the top of the deposit screen, set the date, and save.

Desktop has one useful habit Online lacks: if payments are waiting, it will open the Payments to Deposit window every time you go to Make Deposits, which makes a growing backlog harder to ignore.

Why the balance will not clear

If the steps above did not empty the account, one of these is happening. In practice the third is the most damaging and the least noticed.

What you are seeing	What is actually going on	How to resolve it
Payments listed but no matching bank line	Genuine timing. The deposit is in transit, or a check was never taken to the bank.	Nothing to fix if recent. If it is months old, the check was probably lost or voided and the payment needs deleting or reversing.
Balance persists after depositing everything	Someone posted a journal entry or an opening balance directly to Undeposited Funds, so there is no payment to select.	Run a report on the account and look for entries with no customer name. Those have to be reversed with a journal entry, not a deposit.
Income looks too high, balance keeps growing	The deposit was entered straight into the bank register as new income while the payment stayed in Undeposited Funds. The same revenue is counted twice.	Delete the direct bank entry and rebuild it as a proper bank deposit that selects the waiting payment.
Payments reappear after you delete a deposit	Working as designed. Deleting a deposit releases the payments inside it back to Undeposited Funds.	Recreate the deposit correctly. This is covered in more detail in the deposit deletion guide linked below.
Balance is negative	A deposit selected more than was sitting in the account, usually after a payment was later edited or deleted.	Open the deposit and re-select the payments that genuinely belong to it.

The double counted income problem, and how to find it

This deserves its own section because it changes the numbers on a tax return. It happens like this. A customer payment gets recorded against an invoice, so it lands in Undeposited Funds. Later, somebody sees the deposit on the bank feed, does not recognise it, and categorizes it as sales income. The invoice is paid, the bank is right, and the profit and loss now shows the same sale twice. The evidence is the Undeposited Funds balance, which never comes down because the payment inside it was never used.

To find these, run a Transaction Detail by Account report filtered to Undeposited Funds with a date range covering the whole period. Every line should be a customer payment or sales receipt that later leaves via a deposit. Then, for any payment still sitting there after thirty days, search the bank register around the expected date for a deposit of the same amount that was categorized as income. A match means you have found a double count.

The fix is to delete the incorrectly categorized bank entry and rebuild it through Bank deposit, selecting the waiting payment. Income drops back to the right figure and the holding account clears in the same move. If that transaction sits inside a period you have already reconciled, you will need to undo the bank reconciliation for that month before you can safely change it.

Clearing an old Undeposited Funds balance at year end

A stale balance carried into a new year is worth resolving rather than rolling forward. Work through it in this order.

Age the contents. Anything under thirty days old is probably fine. Concentrate on what has been sitting there for months.
Match old payments to real deposits. Most of them did reach the bank, just through a deposit entered the wrong way. Fixing those clears the balance without touching income.
Deal with what never arrived. A payment for a check that bounced or was lost should be reversed, and the invoice reopened so it shows as outstanding again.
Only then consider a journal entry. Writing off the remainder to income or an adjustment account is a last resort, and it should be a small residue rather than the bulk of the balance. If you are about to journal out a five figure amount, the underlying transactions have not been investigated yet.

Firms that run this cleanup across many clients usually pair it with dedicated account reconciliation software so that a holding account drifting away from zero raises a flag during the month rather than during the year end scramble.

How do I stop Undeposited Funds from building up again?

Set the default and then leave it alone. In QuickBooks Online, open Settings, then Account and settings, then Advanced, and check what the default deposit account for payments is. If your customers pay by card or ACH and the money lands in the bank the same day, routing those payments through a holding account adds a step that buys you nothing. Point them straight at the bank account.

Keep Undeposited Funds for what it was designed for: cash and checks that genuinely sit before someone banks them. Then make the emptying part of a routine rather than a project. Checking that the balance is zero, or explainable, is a two minute step in a month end close checklist and it prevents the version of this problem that takes a full day to unwind.

What is the difference between Undeposited Funds and a bank deposit?

Undeposited Funds is an account that holds money temporarily. A bank deposit is the transaction that moves money out of it. The payment puts funds into the holding account, the deposit takes them out and into checking. You need both halves. Recording only the payment leaves the balance climbing, and recording only the deposit leaves invoices showing as unpaid while income appears from nowhere.

Can I delete transactions out of Undeposited Funds?

You can, but it is usually the wrong tool. Deleting a customer payment removes it from the holding account and simultaneously reopens the invoice it was paying, so accounts receivable jumps by the same amount. That is correct only when the payment genuinely never happened, such as a check that bounced. When the money did arrive, the answer is a bank deposit rather than a deletion. Deleting the deposit rather than the payment behaves differently again: the payments inside it survive and return to Undeposited Funds, which is explained in the guide to deleting a deposit in QuickBooks.

Why does Undeposited Funds show on my balance sheet?

Because it is an asset you own. The money exists, it has left the customer, and it has not yet reached your bank, so it appears as an Other Current Asset alongside accounts receivable. That placement is correct and the account should not be hidden or made inactive. A permanently inflated balance in that spot, though, overstates your assets, which matters if anyone outside the business is reading the balance sheet.

Where cleanup work usually starts

In most catch up engagements the Undeposited Funds balance is not the first thing you fix, it is the thing that appears once the bank side is complete. You cannot tell which payments really landed until every bank transaction for the period is in the file, and on older periods the bank feed will not reach that far back. That is when statements become the source of record, and converting them into QuickBooks Web Connect files gets the missing months into the register in a format QuickBooks matches automatically. Once the bank side is complete, the holding account usually resolves in an afternoon instead of a week.

If you are rebuilding a whole year rather than fixing one balance, the broader sequence is set out in our guide to QuickBooks cleanup from PDF bank statements. And if the payments themselves are the messy part, with customers paying partial amounts against invoices, handling partial payments and deposits on an invoice covers how those should be recorded before they ever reach the holding account.