Undeposited Funds isn't a broken account, and most attempts to empty it make the books worse rather than better. It's a holding tray, so a balance sitting in it means QuickBooks Online is holding customer payments you've recorded but haven't yet grouped into a bank deposit, which is what the account is there for. Clearing it properly takes one screen and about a minute, and the reason it won't stay clear is a different problem that starts several steps earlier.
Everything below is the accounts receivable side of your ledger. Money has arrived from customers, and QuickBooks needs two facts about it: which invoices it settles, and how it reached your bank. Undeposited Funds answers the second one, and if you get the first one wrong the account fills up with entries nobody can explain at year end.
What undeposited funds means in QuickBooks Online
Undeposited Funds is a default holding account QuickBooks Online creates for you, and newer versions of the interface label it Payments to deposit. When you record a customer payment and pick it as the Deposit to account, the money is booked as received and the invoice is marked paid, but the cash hasn't been assigned to any bank account yet, so it waits there until you tell QuickBooks which bank deposit it formed part of.
What undeposited funds are, then, is a clearing account, a waiting room between a customer paying you and your bank showing the money. QuickBooks Desktop uses the same account name for the same purpose, though the screens differ. RemitClear works with QuickBooks Online, and every step in this guide is written for the online version.
The account exists because the two sides arrive in different shapes, since your bank shows one deposit for the day while your customers paid you five separate amounts. Without somewhere to hold them, QuickBooks would carry five receipts while the bank feed carried one line, and the two would never agree. Undeposited Funds lets you record each payment against the right invoice and still present a single deposit to the bank. It sits in current assets alongside your bank accounts, which is worth understanding in its own right, and we've written about what undeposited funds on the balance sheet is telling you.
Why the balance grows and does not clear itself
Nothing here happens on its own, because QuickBooks puts payments in and only you take them out. Every payment received to Undeposited Funds stays there until it appears on a Bank Deposit, so the balance is a straight count of receipts you've recorded and never deposited. Four things usually make up an old balance.
- Payments received to the holding account, then reconciled from the bank feed another way. The bank line got cleared against something else, and the original receipt was left stranded.
- Deposits keyed by hand. A journal entry or a sales receipt put the money in the bank account directly, so the deposit exists but never consumed the payments behind it.
- The same payment recorded twice. Once from the invoice, once from the bank feed, and only one of the two ever reaches a deposit.
- Genuine cash in transit at the closing date. Correct and expected when it's recorded, and then never revisited.
Only the last of those is legitimate. In the other three the cash has already reached your bank by another route, so the untouched receipt is overstating your assets. A credit memo never reaches this account at all, because there's no cash to deposit, and that catches people out when a customer nets a credit against the invoices their payment covers, which is a separate job covered in how to apply a credit memo to an invoice in QuickBooks Online.
How to find undeposited funds in QuickBooks Online
Two views answer two different questions, since the balance tells you how much is waiting and the detail tells you which receipts make it up, and it's the detail you need before you can clear anything.
Check the balance
- Open the chart of accounts. Go to Settings, then Chart of accounts.
- Find the account. Look for Undeposited Funds, or Payments to deposit in newer layouts. The Balance column is the total currently waiting.
- Open the detail. Select View register, or Run report, to see the individual receipts.
List the payments behind it
- Drill in from the balance sheet. Go to Reports, open the Balance Sheet, and select the Undeposited Funds figure.
- Or open a deposit. Select + New, then Bank deposit. Every payment sitting in the account is listed under the section for selecting payments to include.
- Sort by date. Anything older than your most recent bank deposit is the part worth investigating.
The Bank Deposit screen is the more useful of the two, because it's both the report and the fix, and everything it lists is a payment QuickBooks is still holding on your behalf.
How to clear undeposited funds with a bank deposit
Clearing the account means moving payments out of it into a real bank account, grouped the way your bank received them, and one screen does all of it.
- Open a bank deposit. Select + New, then Bank deposit.
- Set the account and date. Choose the bank account the money landed in, and use the date it hit the bank, not the date the customer paid.
- Tick the payments in that deposit. Check each receipt that made up the deposit, watching the running total at the bottom.
- Tie it to the statement. The total must equal the deposit on your bank statement to the cent. If it does not, you have ticked the wrong set.
- Save. Select Save and close.
The payments you ticked have now left Undeposited Funds, and the deposit appears in the bank account ready to match the line on your bank feed, so repeat it for each separate deposit. Resist the urge to sweep the whole balance into one deposit to make the account read zero, because a deposit with no counterpart on your statement will never match, and all you've done is move the problem into the bank account.
The rule that keeps this account honest is one Bank Deposit per line on your bank statement, so a deposit per customer or a deposit per week won't do, and never one large deposit at month end to flatten the balance. If a deposit in QuickBooks has no twin on the statement, the account hasn't been cleared.
You can see the change on the invoice list too. An invoice whose payment is still waiting in Undeposited Funds shows as Paid, and once that payment is on a Bank Deposit the status moves to Deposited. That pair of statuses is usually what people mean by a cleared payment in QuickBooks. The bank register uses its own letters, C for cleared and R for reconciled.
Why a journal entry won't clear undeposited funds
A journal entry that credits Undeposited Funds and debits the bank brings the balance to zero on the balance sheet without touching the payments behind it. The receipts it was meant to clear are still in the account as individual payments, so they go on appearing on every Bank Deposit screen, and the next person to record a deposit can tick them a second time. Meanwhile the bank account carries an amount that no line on your statement explains.
An old balance has to be worked through receipt by receipt, either into the Bank Deposit it belongs to or through the stale-entry fixes further down, which takes longer than one journal and leaves each receipt matched to a real line on the statement.
Applying money in a clearing account to an invoice
Some company files don't use Undeposited Funds for this at all. Cash from the bank feed gets added to an account of their own, often called A/R Clearing or Cash Clearing, so the bank reconciles straight away and the invoices get dealt with later. The bank side reconciles, but every invoice stays open until somebody applies the money, and the clearing account sits below zero by whatever is still waiting.
- Start a payment. Select + New, then Receive payment, and choose the customer.
- Tick the invoices it settles. Enter the amount received and check the Payment column on each line against the remittance advice.
- Deposit it to the clearing account. In Deposit to, pick the clearing account instead of a bank account. The list is made up of bank and other current asset accounts, so if yours is missing, check its type in the chart of accounts.
- Save. Select Save and close.
The payment debits the clearing account by the amount the bank line credited to it, so the two cancel and the invoices close without anything new reaching the bank account, which makes it the route to use once the deposit has been reconciled. Once every receipt is applied the clearing account should read zero, and anything left in it is cash you still need to find an invoice for, which is often a payment that belongs on the unapplied payments list or one the customer short-paid against the invoice.
Fixing the entries that will never deposit
Some receipts in the account belong to a deposit that already happened and was recorded some other way, so no future deposit will ever pick them up. Deleting them is tempting and usually wrong, because each receipt is applied to an invoice, and deleting the payment reopens the invoice you've already been paid for.
Work backwards instead, and for each stale receipt find the bank transaction representing the same money. If a duplicate deposit or a sales receipt put the cash in directly, remove that entry and include the original payment in a correctly dated Bank Deposit. If the money never arrived, the receipt was recorded in error and the invoice should go back to open. Fix what caused the entry, or the same line reappears next quarter.
There's a related mess worth clearing at the same time, since a payment recorded but never applied to any invoice doesn't appear here, because it never chose a deposit account in the first place, and QuickBooks reports it as Unapplied Cash Payment Income on a cash basis. That one's covered in how to find and apply unapplied payments in QuickBooks Online.
Reconciling the account and keeping it at zero
You don't reconcile Undeposited Funds against a statement, because it has no statement, so what you do instead is question every line in it. At each close, open the detail and ask of each remaining receipt whether, on the closing date, that money had left the customer without yet reaching your bank. If it had, the balance is correct and should be small, and if it hadn't, you're looking at a stale entry of the kind above.
A healthy account carries a balance for a day or two after each payment run and then comes back to zero, so a balance that's been the same figure since March has been sitting there forgotten. Reviewing it monthly takes minutes, while reviewing it once a year turns into a forensic exercise, because the context that would have explained each line has gone, along with the person who keyed it.
Stopping it from filling up again
Every stale line in this account started as a payment applied in a hurry. A remittance arrives listing forty invoices against a single bank credit, someone works through it under time pressure, and one receipt gets recorded twice or lands on the wrong invoice. Undeposited Funds is where that surfaces weeks later, and cleaning it up costs far more than applying the payment correctly would have.
RemitClear works a step upstream of this account, where the balance comes from in the first place, and software that claims to empty it is describing something else. What it takes out is the step where the errors get made. It reads the remittance advice your customer sent, in whatever form it arrived, PDF, spreadsheet, CSV or the body of an email, uses AI-powered extraction to pull every invoice number and amount off it, matches those against the open invoices in your company file, and prepares the payment allocations for you to approve. Payments post to whichever deposit account you nominate, which can be Undeposited Funds or a bank account directly.
Because the application is right the first time, the account holds only receipts that are still in transit, which is the state it was designed for. The same document forwarded twice is flagged as a duplicate before it can post again, and a remittance carrying a credit note or an already-paid invoice is held back for a person to look at, never posted on its own. That's the work RemitClear's cash application for QuickBooks Online does.
Summary
Undeposited Funds does its job and gets blamed for the mess upstream of it. Clearing it is a Bank Deposit, one per line on your bank statement, and the discipline that matters is refusing to invent a deposit with no counterpart on the statement just to make the balance read zero. Anything left after that is a stale receipt with a story behind it, and the story's nearly always a payment applied twice or applied to the wrong invoice. Check the account monthly, keep the balance small and short-lived, and fix the application step if the same investigation comes round every quarter.
