Glossary · Bookkeeping basics
Undeposited funds
Undeposited funds is a holding account for customer payments that have been received but not yet deposited in the bank. Payments wait there until you record the bank deposit, which can combine several cheques or a day's cash into one total. This makes the books match the single deposit line on the bank statement.
Glossary / Undeposited funds · Also called payments to deposit, cash clearing account
How it works
If you receive five cheques on Monday and take them to the bank together, the bank statement shows one deposit, not five. Posting each payment straight to the bank account would leave five lines in your books and one on the statement, which makes reconciling painful.
With undeposited funds, each payment clears the customer's invoice and goes to the holding account. When you make the deposit, you pick the payments that went to the bank, and one deposit of the total moves them into the bank account. A balance that keeps growing in undeposited funds usually means deposits were recorded twice or never recorded.
Worked example: Three cheques, one deposit
A contractor receives cheques of $1,200, $850 and $400 from three customers on Tuesday. Each payment is recorded against its invoice and lands in undeposited funds, which now holds $2,450.
On Wednesday the contractor deposits all three. The deposit moves $2,450 from undeposited funds to the bank, matching the single $2,450 line on the bank statement. Undeposited funds is back to $0.
| Step | Undeposited funds | Bank |
|---|---|---|
| Receive 3 payments | $2,450 | $0 |
| Make deposit | $0 | $2,450 |
In AcboBooks
Undeposited Funds (1200) is in the starter chart. A preference decides whether received payments go there or straight to the bank. Make Deposit debits the bank for the total and credits each line's account, such as Undeposited Funds; it can also record a deposit fee, and the Deposit Detail report lists the payments in each deposit.
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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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