Export or back up the relevant data first. Do not delete, void, unreconcile, or adjust historical transactions unless you understand the accounting impact.
Menu names can change. We link current first-party instructions so you can confirm product behavior before acting.
Use Undeposited Funds only as a temporary holding account for customer receipts that will be grouped into a real bank deposit. Use a separate governed processor clearing account when gross sales, fees, refunds, reserves, disputes, and net payouts need to reconcile. Never clear old balances with an unsupported journal entry: trace each amount from customer transaction through receipt, deposit or payout, and bank settlement.
Best for: bookkeepers and businesses matching customer payments or processor settlements to bank deposits
What this guide covers—and what it does not
The page owns one search intent: using and reconciling QuickBooks Undeposited Funds and payment clearing accounts. Related jobs have their own canonical guides so you can move between them without mixing product selection, setup, troubleshooting, and migration advice.
- This page owns payment holding, grouped deposits, processor clearing, old balances, and deposit-level reconciliation.
- The bank-matching guide owns a downloaded transaction that will not match; reconciliation guides own final statement reconciliation.
- QuickBooks Payments and third-party processors can post differently; map and test the exact integration before use.
Evidence-first workflow
Trace gross customer activity to net bank settlement
The clearing chain should explain both the customer event and the bank amount without recording revenue twice.
- 1
Identify
Determine whether the source is an invoice payment, sales receipt, processor sale, refund, fee, reserve, dispute, or transfer.
Evidence: The economic event and source system are known.
- 2
Hold
Place external customer receipts in Undeposited Funds or processor activity in the approved clearing account once.
Evidence: Customer balance and gross activity are correct.
- 3
Group
Build the bank deposit or payout from the exact included transactions and adjustments.
Evidence: The grouped total equals deposit or processor evidence.
- 4
Match
Match the downloaded bank amount to the existing deposit rather than adding new income.
Evidence: One bank-register record represents the settlement.
- 5
Reconcile
Explain open receipts, in-transit payouts, fees, refunds, reserves, disputes, and old differences.
Evidence: Clearing balances are supported by dated settlement detail.
Decision control
Choose from evidence, not a feature list
Use the same four gates for using and reconciling QuickBooks Undeposited Funds and payment clearing accounts: define the job, surface constraints, choose the smallest workable option, then verify the records.
Choose the holding or deposit path
Use the path that matches how money moves and how the bank or processor groups it.
| Your situation | Direction | Why |
|---|---|---|
| Several checks deposited together | Use Undeposited Funds then one bank deposit | The grouped QuickBooks deposit can match the single bank amount. |
| One customer payment deposited alone | Deposit directly when the workflow supports it | A temporary group is unnecessary if the bank shows the same individual amount. |
| Processor pays gross sales less fees and refunds | Use a processor clearing reconciliation | Net bank cash must bridge to gross customer activity and each adjustment. |
| Downloaded deposit already has an existing QuickBooks deposit | Match, do not add | Adding creates duplicate income and an unmatched original receipt. |
Define the holding account for each payment channel
Document how cash, check, card, ACH, marketplace, and other receipts enter QuickBooks; which source is authoritative; where they wait; who groups them; and when they should reach the bank. Do not use one undifferentiated clearing account for unrelated processors if settlement evidence cannot be separated.
For integrations, map sales, tax, tips, shipping, discounts, fees, refunds, reserves, disputes, chargebacks, and payouts. Test a normal sale, refund, partial refund, fee, withheld reserve, negative payout, and retry before enabling automatic posting.
Build the exact deposit before using the bank feed
Select only receipts included on the physical deposit slip or processor payout. Add approved adjustments such as merchant fees through the supported gross-to-net path rather than reducing sales. Confirm bank account, settlement date, currency, and total.
In the bank feed, search for and match the existing deposit. If no match appears, compare amount, date, bank account, currency, cleared status, prior matches, and whether the receipt was deposited elsewhere. Do not choose Add merely because Match is not suggested.
Clean old balances transaction by transaction
Run detail from inception or the earliest reliable date. Group open items by source, customer, age, amount, and likely resolution: still in transit, already deposited, duplicated, misdirected, refunded, deleted, converted, or unsupported. Trace to bank and processor evidence.
Correct the original chain where safe and open periods permit. For historical periods, obtain accountant approval and preserve pre-change reports, the reason, affected reconciliations, tax implications, and post-change proof. A plug entry can hide duplicate income, open receivables, or missing cash.
Never delete or reclassify a customer receipt solely because it is old. Confirm customer balance, bank settlement, prior reconciliation, tax, and closed-period effects first.
Reconcile clearing balances at every close
Prepare a rollforward: opening clearing balance plus gross activity minus deposits or payouts and approved adjustments equals ending balance. Tie ending items to dated receipts, settlement batches, reserves, disputes, or timing evidence.
Investigate negative balances, items older than the normal settlement cycle, manual journals, deposits without source receipts, source receipts without deposits, and differences between processor statements and integrations. Assign every exception and expected resolution date.
Completion checklist
Do not call the decision or setup complete until someone independent of the initial change can verify these items.
Frequently asked questions
Is Undeposited Funds income?
No. It is normally a temporary current-asset holding account for customer receipts before the corresponding bank deposit is recorded.
Why is my Undeposited Funds balance negative?
Possible causes include deposits without underlying receipts, deleted or changed payments, wrong dates, duplicate deposits, or entries posted directly to the account. Trace the transaction chain before correcting it.
Can I journal Undeposited Funds to zero?
Not without transaction-level evidence and accountant approval. A plug can leave customer, income, tax, and reconciled-bank records wrong even if the account reaches zero.
Still comparing adjacent tasks? Use the complete guide library to find the one page that owns your intent.
Optional free utilities
Tools that support this workflow
These run in your browser and can help prepare or inspect files. They do not replace reconciliation, source-document review, or an accountant’s approval.
Sources checked
First-party product documentation used to verify the workflow and risk notes in this guide.