Shownotes
We’ve seen it all when it comes to looking over business owners’ books, but there’s one bookkeeping mistake that we see again and again: undeposited funds.
Undeposited funds is an account in QuickBooks Online, and it is an automatic account that is created if you are invoicing out of QuickBooks.
If you see that account growing, it’s a big red flag.
Tune into this episode to understand:
02:51 — What are undeposited funds
03:29 — Why undeposited funds create issues on your financial statements
05:35 — How undeposited funds happen
11:47 — How undeposited funds might be making you double-counting your revenue
12:31 — Why remedying undeposited funds is crucial for tax savings
13:44 — How to spot the warning signs of undeposited funds on your balance sheet
🧹Get a Quickbooks Cleanup to Get Your Books Back on Track
If you’ve run into issues with undeposited funds, or you're looking to re-categorize existing transactions, reconcile accounts, examine journal entries, etc, our QuickBooks Cleanup will get your books in order so you have an accurate financial view of your business so you can scale more effectively and give your accountant the best numbers to reduce your tax bill.
When you book a call, we’ll get to know your business and needs and determine exactly what needs to get accomplished during the Quickbooks Cleanup process.
https://knowyourworthpgh.com/bookkeeping
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Transcripts
If you see your undeposited funds accounts growing, seek assistance.
Speaker:It is not a good thing, unless you just have all that cash truly sitting in your
Speaker:pocket or in your cash drawer then you're good, but make sure it's the same amount.
Speaker:You know, if you haven't actually deposited that money and it's sitting
Speaker:in an envelope in the corner and you've marked all those invoices as paid, you got
Speaker:all the checks and they're truly in the corner of your office, and that amount of
Speaker:those checks ties to that number, great.
Speaker:Go deposit the checks and then match all of it.
Speaker:Mm-Hmm, . But if the checks have all been deposited, if the Venmo's
Speaker:all been cleared out and you don't know, why is that number there?
Speaker:That number is wrong.
Speaker:Okay?
Speaker:And you're most likely double counting revenue.
Speaker:Mm hmm.
Speaker:And you're not gathering all your expenses.
Speaker:And that's why it's so tricky is because that's hard to follow if you don't
Speaker:understand all the journal entries that are being made, you're probably
Speaker:paying taxes on the wrong number.
Speaker:Oh God, that gives me anxiety.
Speaker:Welcome to the Know Your Worth Show, where we teach you how to think about
Speaker:your money differently so that you can achieve your sexy money goals.
Speaker:I'm Sydney, your money maven and owner of Know Your Worth.
Speaker:And I'm Kristen, Syd's dimepiece bestie, team member, and busy mom of
Speaker:twins, here to make sure that those of us without a financial degree can
Speaker:still level up with each episode.
Speaker:Let's get started on reaching your next goal.
Speaker:Hello,
Speaker:Hello.
Speaker:Welcome to the know your worth podcast.
Speaker:I am Sydney, one of your hosts and your money maven.
Speaker:And I am Kristin, Syd's dime piece bestie.
Speaker:And I am here for comic relief and clarification
Speaker:and just winning personality and your beauty and all of it.
Speaker:You're here for so much, so much, so much.
Speaker:Keep me sane.
Speaker:That's my job.
Speaker:I like, yes, absolutely.
Speaker:Me too.
Speaker:So we are starting.
Speaker:I'm excited about this.
Speaker:Yeah, so we decided that there would be a good idea to kind of talk about some of
Speaker:the little dumpster fires, maybe some big dumpster fires kidding But we're gonna
Speaker:call this the DIY bookkeeping dumpster fires episode So not to be too, you know,
Speaker:we're not, we're not going to be too mean about some of them, but they are
Speaker:really good to put on your radar if you are doing your own books, just things to
Speaker:keep an eye out for, things that could negatively impact your books, and just
Speaker:things that you should be aware of that we've seen in our clients that we really
Speaker:don't want you to make the mistake of.
Speaker:So we are calling them, you know, for you.
Speaker:Good DIY dumpster fires.
Speaker:And these are just going to be a little bite sized episodes where
Speaker:we just give you a little tip.
Speaker:If you're doing your own books, you can go back, take a look, apply it,
Speaker:and then if you need help, reach out.
Speaker:Cause yes,
Speaker:no judgment at all.
Speaker:None.
Speaker:We've seen so many clients start with these things, come to us with these
Speaker:things, or some of the first things on our list, to keep an eye on and to remedy.
Speaker:So it's just a great place to start.
Speaker:If you take a look at your own books and you see these things, it's just a
Speaker:little red flag for you to get some help.
Speaker:Yeah.
Speaker:So let's go.
Speaker:So what's your first?
Speaker:dumpster
Speaker:fire
Speaker:The first one is undeposited funds.
Speaker:What does it mean?
Speaker:So undeposited funds is an account in QuickBooks Online and it is an
Speaker:automatic account that is created if you are invoicing out of QuickBooks.
Speaker:Okay.
Speaker:So if you're someone that invoices your clients out of QuickBooks and you see any
Speaker:funds in undeposited funds, or you see it growing is the problem, you're, sometimes
Speaker:you're going to see something in there and then it'll go back down to zero.
Speaker:You might see something go back down to zero, but if you
Speaker:see that account continually growing, it can be a big concern.
Speaker:Tell me why it's a big concern.
Speaker:Undeposited funds.
Speaker:So say you put an invoice in QuickBooks and you send it to your client.
Speaker:The invoice gets sent to them and they pay it, but they don't pay it
Speaker:right through the QuickBooks pay.
Speaker:Say you're someone that asks for checks or you get cash or they do an
Speaker:ACH transfer, but it's not through the QuickBooks payment system.
Speaker:If it's through the QuickBooks payment system, QuickBooks will
Speaker:automatically link the two transactions.
Speaker:Like, Oh, these match.
Speaker:They go together.
Speaker:Check, check.
Speaker:And a lot of the times QuickBooks will try to link it if it is the
Speaker:same dollar amount, but say the bank charged a $25 fee for an ACH transfer.
Speaker:So you're only getting that invoice amount minus 25.
Speaker:So it's not exactly the same.
Speaker:Or say it's a partial payment.
Speaker:You invoice to client 3, 000 and they send you three $1,000 checks.
Speaker:The amount's not going to tie to that invoice.
Speaker:So QuickBooks won't try to match it for you.
Speaker:QuickBooks will try to match items if they are the same amount.
Speaker:Because they're trying to help you.
Speaker:It's not always the right thing, but sometimes it is.
Speaker:Yeah.
Speaker:If it is a payment that you're collecting that is not through QuickBooks payments,
Speaker:that where it would automatically connect.
Speaker:Okay.
Speaker:It would come through as Intuit, and it would automatically match that.
Speaker:It needs to be matched to that invoice.
Speaker:Oh.
Speaker:So say you take a check and you deposit it to the bank, and
Speaker:you say that check is sales.
Speaker:Oh, you go in your bank feed in QuickBooks, and you say check
Speaker:1032 for $1,000, and say you just say, "Oh yeah, that was sales.
Speaker:I'm going to put that in sales."
Speaker:But you went into that invoice and you clicked receive payment for a thousand
Speaker:dollars but you didn't match the two, you didn't click match in that bank fee.
Speaker:So everything's just like floating around willy nilly.
Speaker:And it's duplicated now.
Speaker:So what will happen is if you go into that invoice and you say oh my client paid a
Speaker:thousand dollars on this three thousand dollar invoice, the invoice will now
Speaker:show there's an open balance of $2,000.
Speaker:It will reduce your accounts receivable by 1, 000, and it will increase
Speaker:your undeposited funds by 1, 000.
Speaker:Okay.
Speaker:So, the accounting transactions that go through in QuickBooks, just to
Speaker:give a general overview because I feel like this will help a little bit.
Speaker:Yeah.
Speaker:When you create an invoice in QuickBooks.
Speaker:Okay.
Speaker:That creation of the invoice increases your accounts receivable
Speaker:and increases your sales.
Speaker:So sales go up, accounts receivable goes up.
Speaker:All good.
Speaker:When you say, oh, my client paid me 1, 000, accounts receivable goes down 1, 000.
Speaker:Undeposited funds, typically it would be cash that would go up a
Speaker:thousand dollars, but because you haven't received it into the bank
Speaker:yet, it goes in undeposited funds.
Speaker:That's the journal entry QuickBooks is creating.
Speaker:And then whenever the cash is actually showing up in your bank
Speaker:feed, it would clear the undeposited funds and it would increase cash.
Speaker:Like that's, it would decrease that undeposited funds and cash would match.
Speaker:Okay.
Speaker:So what's happening is you're creating the invoice, so sales are going up,
Speaker:accounts receivable is going up.
Speaker:Mm hmm.
Speaker:You're saying, oh, my client paid me 1, 000.
Speaker:My accounts receivable is going down hmm.
Speaker:And your undeposited funds is going up 1, 000.
Speaker:Okay.
Speaker:Then you're receiving that 1, 000 in the bank, and if you're not matching it,
Speaker:Okay.
Speaker:That undeposited fund stays at 1, 000, accounts receivable stays at
Speaker:1, 000, cash goes up 1, 000, and then sales goes up another 1, 000.
Speaker:Everything's jacked up.
Speaker:Yes.
Speaker:Yeah.
Speaker:So that undeposited funds never clears out, cash goes
Speaker:up just like it always would.
Speaker:So if you're looking at the bank balance, it might tie or it might
Speaker:be overstated because you're saying you received in two payments.
Speaker:It depends on where you're plugging things and where you're saying what account.
Speaker:And that's why it's so tricky is because that's hard to follow
Speaker:if you don't understand all the journal entries that are being made.
Speaker:So what you want to make sure is that if you see undeposited funds increasing
Speaker:or that balance never goes back down to zero, what QuickBooks is saying is.
Speaker:Oh, you never took that money to the bank.
Speaker:It's not been deposited yet.
Speaker:It's undeposited.
Speaker:So they think that you're just holding onto it in your pocket.
Speaker:It just hasn't hit your bank account Okay And that's typically not the case.
Speaker:What's happening is that people are depositing that money, but they're
Speaker:not clearing out undeposited funds.
Speaker:Where we see this happen with our clients is when they use Venmo.
Speaker:That's like the biggest culprit because the money.
Speaker:Typically, then they don't put it in their bank account, it
Speaker:sits in their Venmo account.
Speaker:Or they use it, and it doesn't then tie when they deposit it
Speaker:into their bank account because they use some of the Venmo funds.
Speaker:I personally don't like Venmo for business, just for the bookkeeping
Speaker:side unless it's a hundred percent for business and you connect the
Speaker:Venmo like it's a business account.
Speaker:Or you transfer it every time in full.
Speaker:If it's your business account and it's Venmo that's only for business, you either
Speaker:want to connect that like it's a bank account to your QuickBooks, or you want
Speaker:to, every time you receive funds, deposit the funds fully into the bank account.
Speaker:Got it.
Speaker:If you use that Venmo like a bank and you're spending from it then, you need
Speaker:to make sure you're recording all those transactions because it gets wonky.
Speaker:Yeah.
Speaker:So we've had clients that they have Venmo and they say, Oh,
Speaker:received payment paid with Venmo.
Speaker:But then we never see that Venmo payment come into the bank.
Speaker:So.
Speaker:How to, where did it go?
Speaker:What did you spend it on?
Speaker:Yeah So if you're spending that on personal money Then the journal entry
Speaker:that we would have to make to clear that out would be Sales came into the
Speaker:bank You took it out as an owner draw.
Speaker:Oh my god.
Speaker:Exactly.
Speaker:So it's like a payment to yourself then.
Speaker:Like, we need to make sure that you're tracking all of that.
Speaker:Right.
Speaker:So if that money never comes into the bank, there's like three more steps
Speaker:that have to happen because it's, it's almost like the money did get
Speaker:deposited, you pulled it out yourself, and then you spend it on personal stuff.
Speaker:So typically the entry that we have to make to correct that is owner
Speaker:draw, like we just, it's owner draw.
Speaker:Unless you can prove to us, oh it was, I spent it in my Venmo, but I
Speaker:Venmo'd my contractor, and I Venmo'd my cleaning person for our building.
Speaker:But you still have to match numbers though, right?
Speaker:Exactly, and you still want to track all of that, because then you're not getting
Speaker:all of those expenses in your book.
Speaker:You're just saying, where'd it go?
Speaker:Oh, okay.
Speaker:Yeah, we, oh, we did collect that.
Speaker:Okay, but where, it, did it get into the bank account ever, or did
Speaker:it never get into the bank account?
Speaker:If it never got into the bank account, you need to tell us where it went,
Speaker:so we can either give you the right business expenses, or we have to call
Speaker:it owner draw, like you paid yourself.
Speaker:So this is a disaster, like doing it once, but the people who are doing it like
Speaker:multiple hundreds of times over a year.
Speaker:So is this what a QuickBooks cleanup service would address?
Speaker:Yes.
Speaker:Like if you're like, Hey, I messed up.
Speaker:This is totally out of control.
Speaker:And so you guys sit down with somebody's open books and you
Speaker:match things up and make it work?
Speaker:Oh my gosh.
Speaker:How do you not have migraines?
Speaker:As much as we possibly can.
Speaker:Yeah.
Speaker:Because sometimes it's really hard for us and we can't do it
Speaker:if you don't have the record.
Speaker:We have a couple of clients that they have Venmo transactions that
Speaker:they do this with even still.
Speaker:And so when we're asking them, 'Hey, you know, this undeposited funds account is
Speaker:growing, where's the Venmo transaction?"
Speaker:so then they have to send us the whole Venmo detail and then
Speaker:we have to go through that.
Speaker:And then we'll make a big journal entry to say, Okay, you have
Speaker:$11,000 in undeposited funds.
Speaker:You kept 3, 000 of that for personal transactions.
Speaker:But the other 8, 000 was business expenses and you list them all out for us.
Speaker:And then we'll make a journal entry which will reduce undeposited funds by 11,
Speaker:000, and it'll increase expenses by 8, 000 and increase owner draw by 3, 000.
Speaker:Yeah, so that's how we would clear that out, but if our clients can't
Speaker:validate it, it's not a business expense if you can't validate it.
Speaker:So then it would be considered a personal payment.
Speaker:And that gets sticky if you're an S corp and you're not supposed to be
Speaker:taking distributions from the business that are in excess of your salary.
Speaker:So you have to be careful with how much money you take out of
Speaker:the business as an S corp because.
Speaker:That's not how you pay yourself.
Speaker:Okay.
Speaker:Mm hmm.
Speaker:So, long story short, if you are doing this, it's time to reconcile,
Speaker:get some help, either figure it out yourself or reach out and get help.
Speaker:Yeah.
Speaker:If you see your undeposited funds accounts growing, seek assistance.
Speaker:It is not a good thing, unless you just have all that cash truly sitting
Speaker:in your pocket or in your cash drawer.
Speaker:Then you're good, but make sure it's the same amount.
Speaker:You know, if you haven't actually deposited that money and it's sitting
Speaker:in an envelope in the corner and you've marked all those invoices as paid, you got
Speaker:all the checks and they're truly in the corner of your office, and that amount of
Speaker:those checks ties to that number, great.
Speaker:Go deposit the checks and then match all of it.
Speaker:Mm-Hmm, . But if the checks have all been deposited, if the Venmo's
Speaker:all been cleared out and you don't know, why is that number there?
Speaker:That number is wrong.
Speaker:Okay?
Speaker:And you're most likely double counting revenue.
Speaker:Mm hmm.
Speaker:And you're not gathering all your expenses.
Speaker:Right.
Speaker:Mm hmm.
Speaker:So if this is your first time doing this and you're like, I need a QuickBooks
Speaker:cleanup service, you could do a one time QuickBooks cleanup service and then go on
Speaker:your merry way of learning this lesson.
Speaker:Yes, absolutely.
Speaker:Absolutely.
Speaker:Like we have a couple of clients that we just do like
Speaker:quarterly check ins with them.
Speaker:So they do all their bookkeeping, but typically we go into their books at the
Speaker:end of every quarter and we see like one invoice didn't clear out the right way.
Speaker:They just didn't match it the right way.
Speaker:Or they edit an invoice and then they cleared out the wrong one.
Speaker:They didn't delete the right one, like little, little things, but because
Speaker:we meet with them quarterly and they are maintaining their books for the
Speaker:most part it's a very easy fix for us.
Speaker:And then a couple of our clients that heavily utilize Venmo, even though we've
Speaker:kind of suggested that they get away from that in the context of how they're using
Speaker:it because it can be very beneficial if you just connect it like a bank account,
Speaker:then it's just a bank account at that point But we have a couple that it does
Speaker:get very difficult, but at the end of the year, we'll always true it up and always
Speaker:clean it up because we never want you to file your taxes on incorrect numbers.
Speaker:So if you've waited a long time to get that information back to us,
Speaker:we're still going to do all the work to make sure that it's cleaned up.
Speaker:Mm hmm.
Speaker:But if you don't do it, say you're doing your own books and you're
Speaker:not making sure, you're probably paying taxes on the wrong number.
Speaker:Oh God, that gives me anxiety.
Speaker:So it's definitely something to look for.
Speaker:Dumpster fire tip number one.
Speaker:Undeposited funds.
Speaker:Check it out.
Speaker:It's on your balance sheet.
Speaker:So if you go into QuickBooks, reports, balance sheet, and then run it for
Speaker:whatever day you're looking at.
Speaker:The balance sheet is as of a certain day, so you could run it as of today.
Speaker:And if you see that number is a large number that scares you a little bit
Speaker:if it's like, you know, one invoice, say it's your typical invoices, 300.
Speaker:It's one great.
Speaker:You can probably figure out what happened and make that change.
Speaker:If you see that it's 3000, it's 10 invoices that might be a
Speaker:lot harder to fix and clean up.
Speaker:If you see it's.
Speaker:10, 000, 15, 000.
Speaker:I mean, we've seen hundreds of thousands of dollars in undeposited
Speaker:funds of just years of it compiling.
Speaker:So if you're seeing that number be more than, you know, one invoice, two invoices,
Speaker:and you don't think you can clean that up.
Speaker:Reach out to us and, and we can get it cleaned up.
Speaker:Info at knowyourworth.
Speaker:com.
Speaker:Yeah.
Speaker:So, undeposited funds, keep an eye out.
Speaker:One way to help your tax savings.
Speaker:Yeah.
Speaker:And let us know how you like episodes like this because we want
Speaker:to keep giving you more of what you can actually apply and use.
Speaker:Yep.
Speaker:Little blurbs, just things to keep out for in your own books.
Speaker:If you're realizing that you need some assistance, it's just some
Speaker:little parameters to look for.
Speaker:Yeah.
Speaker:We're here to help, here to make sure that it goes as smoothly as possible.
Speaker:So let us know if you need some help and good luck.
Speaker:All right.
Speaker:Good luck.
Speaker:Bye guys.
