A/R vs Undeposited Funds – QuickBooks Online Tutorial
How do accounts receivable undeposited funds and the bank account all work together how does invoicing go from creating an invoice to a payment in the checking account these are some of the most common questions that i see with quickbooks and one of the biggest misunderstandings my name is aj stockwell i'm a licensed cpa and this is.
Another video explaining some of the nuances around a particularly confusing quickbooks feature so i have seen a lot of confusion around accounts receivable and this probably requires its own video talking about the different types of accounts and talking.
Through the balance sheet the p l or income statement and this statement of cash flows let me know in the comments if it would be helpful if i made in-depth videos explaining the different financial statements and how they interact with each other so at the end of my quickbooks training course i have a quiz for people to earn.
A certificate of completion and one of the questions that i see missed the most often is what type of account is accounts receivable and many many people say that it's an income account and this is not quite right accounts receivable is actually an asset it's on the balance sheet and it's.
Something that you own in the sense that someone owes you money so if you have accounts receivable you've probably already posted the income now when we start with an invoice to post revenue and then we receive a payment and it goes into undeposited funds and then we want to get that money into the checking account.
I understand why there's a lot of confusion because we're touching four different accounts just to post a sale and in this video i'm going to talk about each step and its effects on the financial statements so the four accounts that are involved are revenue an income account accounts receivable.
Undeposited funds and your bank account revenue of course is an income account but the other three accounts are all asset accounts so all we're really doing is moving money from one asset to another to the third let's start with the invoice our invoice is where we are recording revenue usually when you're invoicing a.
Customer it means that you are acknowledging that you've sold them something so it posts to revenue this indicates that someone owes you money right so what it's doing is posting revenue and it's also increasing accounts receivable let's look at that in quickbooks.
Here's the same quickbooks online account that we were looking at before in the undeposited funds video what i'm going to do is in two different tabs i'm going to pull up the p l the profit and loss statement and the balance sheet so here i'll open up the p l.
And then over here the balance sheet this is looking at year to date all the transactions that we've posted for this year i'm going to set it to this month and we see there's no activity and then i'll do the same thing for the balance sheet although that really.
Just means that we're setting it to september 30th now what we see is that there is no activity on the p l there's been no income or expense recorded to september right now we see that the checking account is at this ten thousand two fifty one so i think i said that i haven't done much since the undeposited funds video.
But it's actually that i haven't done much since the bank reconciliation video that i posted after that we see that accounts receivable is 206 dollars and 34 cents and undeposited funds is 2 300. let's say that we sold something to a customer and we want to record that revenue and we want to invoice them.
Because they owe us money so i'm going to go to the new transaction window and choose invoice i'm going to choose this john smith customer that i've set up will date it as of today because that is when the revenue is going to post we'll say this was for web design services.
And we'll call it five hours at 116 dollars just to make it kind of a weird number so this invoice is for 580 dollars now i'm going to save and close again set this to this month and we see that we have income of 580 if i go over to the balance sheet.
Remember checking account 10 200 accounts receivable two hundred dollars and undeposited funds twenty three hundred now i'll refresh and what we see is accounts receivable has increased by that five 580 checking count is the same as before.
Because we haven't deposited any money to it undeposited funds is the same because we haven't recorded a payment yet we haven't gotten funds that we haven't yet deposited now let's see what the next transaction does it's time to receive the payment this is great our customer sent us a check i usually prefer to be paid by online.
Payment but let's say that our customer sent us a check now we don't want to post revenue for this right we don't want to duplicate and post another 580 of revenue we already recorded that this customer no longer owes us the money but we haven't yet deposited the.
Check and this is where the nuance comes in for undeposited funds the effect of this transaction is it's going to decrease accounts receivable because the customer no longer owes us and it's going to increase undeposited funds let's look at that in quickbooks so i'll go back to this tab and i'm going to go to new transaction and.
Receive payment we're going to go to our john smith customer we're going to say that he paid us on the 20th we'll select this invoice and it automatically fills in the amount received based on.
The invoices that we select it's really important that we use this receive payment function because we want to close out the invoice we want to indicate that this invoice was paid we see that it's going to post to undeposited funds it uses the word deposit which i probably wouldn't use because we're saying that it's.
Undeposited but it's basically the account that this money is going into i'll go ahead and save and close and now let's look at our p l so i'm going to go ahead and refresh the p l and what we see is nothing is different and that is what we would expect because.
We don't want to post another 580 of income right so when you receive a payment against an invoice nothing happens to the p l but let's look at the balance sheet over on the balance sheet and i haven't refreshed yet remember checking account is at ten thousand two fifty one.
Accounts receivable shows 786 right now because that 580 invoice was in there i haven't refreshed so we haven't acknowledged that that invoice is closed out and undeposited funds is at 2300 which are the deposit amounts that we saw from those other videos i'm going to go ahead and refresh this.
Now what we see is that 580 moved from accounts receivable to undeposited funds because we received the payment so the invoice is closed out the customer no longer owes us so we don't want that money to be in accounts receivable and we've received the payment but not yet deposited it so it's sitting here in undeposited funds within our assets.
Now let's deposit that payment let's acknowledge that we've gone ahead and taken it to the bank or scanned it in or used the mobile app or whatever to deposit this check the effect of this third transaction which is recording the deposit is to acknowledge that these funds are no.
Longer undeposited so we want to move it from undeposited funds to the checking account so that it reflects our correct bank balance when we're recording a deposit of a payment it's crucial that we actually record the payment as being deposited and don't manually set a deposit line and i go over that in.
My first video about undeposited funds let's see this in quickbooks now remember 2880 and 10 251. i'm going to go to new bank deposit we'll say we're depositing this the same day that we received it on the 20th.
And that it's going into this wells fargo account i'll choose that john smith payment and save and close now let's look at our p l we see nothing's changed that's correct because we already recorded.
The 580 of income now let's look at the balance sheet now undeposited funds is back down to 2300 that's where it started at the beginning of this video accounts receivable is at 206.34 which is where that started for this video.
But we see that our checking account is 580 higher that's because we moved the funds from undeposited funds to the checking account so to recap we really are removing this same income between three different asset accounts and it's really just to acknowledge that.
At first our customer owes us the money then they've paid us but we haven't yet taken it to the bank and then we've recorded it as deposited to the bank so now the invoice is closed out the payment is recorded as deposited and the checking account is the ending point of this video what if i just ended.
The video right there that really is it for the video thanks for watching if this was helpful give it a like hit that thumbs up button and don't forget to subscribe and hit the notification bell so that you don't miss a video let me know in the comments if this was helpful and if there's something about quickbooks that you.
Don't understand that i should make a video about