How to Turn Off Undeposited Funds in QuickBooks Online

The Undeposited Funds view in QuickBooks Online can quickly become a cluttered list of old, uncleared payments, creating a frustrating roadblock to accurate bank reconciliations. You’re not alone if you've ever wondered how to just turn it off. This article explains what Undeposited Funds is for and provides step-by-step instructions for managing it, including the correct workflow to prevent issues and a guide to cleaning up an already messy account.

What is the Undeposited Funds Account?

Think of Undeposited Funds as a digital version of your bank bag or cash drawer. When a customer pays an invoice with a check or cash, you don't instantly teleport that money to the bank. You collect it, hold it, and then physically take a batch of payments to the bank as a single deposit. The Undeposited Funds account in QuickBooks Online is designed to mirror this real-world process.

It’s a temporary holding account—technically an "Other Current Asset" account on your balance sheet—that holds your customer payments until you group them together and record a bank deposit. Its primary function is to make bank reconciliation manageable. If you deposit five checks totaling $2,500 at the bank, your bank statement will show one single deposit of $2,500. By grouping those five payments into one "Bank Deposit" transaction in QBO, you create an identical $2,500 entry in your QuickBooks register, making the matching process a simple one-to-one check.

Without using this account, you’d have five individual payments in your QuickBooks register to try and match against one lump-sum deposit on your statement, which can be an administrative nightmare.

The Common Problem: A Bloated Undeposited Funds Account

The Undeposited Funds account becomes messy when the workflow is broken. The most common mistake happens in a few steps:

1. A user receives payment for an invoice and correctly uses the "Receive Payment" function. This records the payment and moves the funds into the Undeposited Funds account by default.
2. A few days later, the deposit clears the bank, and the transaction comes through the bank feed.
3. The user sees the deposit in the bank feed and simply adds it, coding it directly to an income account like "Sales."

The result is a major accounting error. You've now double-counted your income—once when you received the payment and again when you added the deposit from the bank feed. Meanwhile, the original payment sits in the Undeposited Funds account forever because the final "Bank Deposit" step was never completed to clear it out. This inflates your assets, overstates your income, and makes bank reconciliation impossible.

The "Right Way"—Using QuickBooks' Undeposited Funds Workflow

Before trying to bypass the system, it's best to understand the intended workflow. Following these three steps will keep your books clean and make reconciliations straightforward, especially if you ever deposit multiple payments at once.

Step 1: Receive the Payment

When you receive payment from a customer for an open invoice, record it properly. This closes the invoice and shows that the customer no longer owes you money.

• From the left navigation bar, go to Sales, then Invoices.
• Find the invoice that was paid and click Receive payment.
• Enter the payment method, date, and amount.
• Look for the Deposit to dropdown menu. Ensure it is set to Undeposited Funds. This is the critical step.
• Click Save and close.

At this point, you've successfully recorded that the customer has paid you. The invoice is marked as paid, your Accounts Receivable balance decreases, and the funds are waiting in your digital "bank bag"—Undeposited Funds.

Step 2: Record the Bank Deposit

This is the step that connects the payments to your actual bank account. Do this only when you physically deposit the money at your bank.

• Click the + New button in the upper-left corner.
• Under the "Other" column, select Bank Deposit.
• At the top, select the bank account where you deposited the money from the Account dropdown. Make sure the Date matches your physical deposit slip.
• You will now see the Select the payments included in this deposit section, which lists all transactions sitting in your Undeposited Funds account.
• Check the boxes next to only the specific payments you included in this single deposit trip.
• As you select the payments, cross-reference the total displayed by QuickBooks with the total on your physical bank deposit slip. They must match exactly.
• Once everything is correct, click Save and close.

Step 3: Match from the Bank Feed

A few days later, when that deposit transaction appears in your bank feed, QuickBooks will recognize the Bank Deposit you just created and suggest a match. You’ll see a green "Match" tag. Simply click Match. You've now completed the cycle perfectly, and your revenue is recorded accurately without duplication.

How to "Turn Off" Undeposited Funds (By Avoiding It Entirely)

There is no on/off switch for Undeposited Funds. It is a permanent default account in QuickBooks Online. However, you can adjust your workflow to bypass it, but only if it makes sense for your business.

This method is only suitable if you deposit every single customer payment individually. For example, if you receive a single check and deposit it via mobile app, or if you receive ACH payments that post one-by-one. If you ever group cash and checks into a single deposit, this workflow will make reconciliation much harder, not easier.

To bypass the UF account, you must change one small detail when you receive payments:

1. Navigate to the customer invoice and click Receive payment.
2. On the "Receive Payment" screen, locate the Deposit to field.
3. Click the dropdown menu and, instead of selecting "Undeposited Funds," choose your actual bank account (e.g., "Checking" or "Operating Account").
4. Fill out the rest of the information and click Save and close.

This action skips the Undeposited Funds holding account entirely and posts the payment directly into your QuickBooks bank register. When the transaction comes through your bank feed, QBO will automatically find and suggest a match. While this seems simpler with fewer steps, it breaks down as soon as you batch deposits.

How to Clean Up Existing Messes in Undeposited Funds

If your Undeposited Funds account already contains dozens of old transactions, you'll need to clean it up. The task involves locating the duplicate income transaction and re-categorizing it to "clear" the original payment.

Step 1: Identify What's in the Account

• From the left navigation bar, go to Reports.
• Run a Balance Sheet report.
• In the Asset section, find the "Undeposited Funds" line and click on the balance amount. This will generate a transaction detail report for the account.
• Change the report date range to All Dates to see everything.

Step 2: Analyze and Correct Each Entry

Work through the list one transaction at a time. The goal is to find the corresponding deposit that was incorrectly "Added" from the bank feed.

1. Pick an old transaction from the report you just ran. Note the customer name, date, and amount.
2. Open a new tab and go to your Chart of Accounts (under Bookkeeping or Accounting).
3. Find the bank account the deposit went into and click View register.
4. Search or scroll in the register to find a deposit that matches the date and amount of the stale Undeposited Funds entry. It will likely be categorized to an income account.
5. Click on the deposit transaction in the register and choose Edit.
6. This opens the original "Deposit" screen that was created from the bank feed. In the "Received From" field, you might see the customer's name, and in the "Account" column, it will say "Sales" or "Uncategorized Income."
7. This is the fix: Change the "Account" from "Sales" to Undeposited Funds.
8. Click Save and close. You have now properly linked this stray bank feed deposit to the Undeposited Funds workflow.

Step 3: Clear the Entries

By retargeting the account in the step above, you’ve told QuickBooks where the money went. Now you just need to clear them out by making a zero-dollar deposit.

1. Go to + New, then Bank Deposit.
2. You will now see the original payment you were investigating in the deposit list.
3. You'll need a way of offsetting the deposit. Head to the "Add funds to this deposit" section from the Undeposited Funds payments section.
   • Received from: (Customer/client name)
   • In the Amount column, enter it as a negative entry (-0.00). Ensure the total transaction is a "0 deposit".
4. Select both. Your original entry and the negative balance entry made within the deposit screen from "add funds to" should add up to $0.00, clearing them on your Bank Deposit screen. They will cancel each other out perfectly without affecting your bank balance.
5. Click Make Deposit to finalize this. Repeat for every incorrect entry.

This process correctly moves the payment out of Undeposited Funds without affecting your previously completed bank reconciliations.

Final Thoughts

Though you can't click a button to fully disable it, managing Undeposited Funds in QuickBooks Online is about adopting the correct workflow. By following the receive payment and bank deposit steps, you ensure your records mirror reality, leading to clean books and seamless bank reconciliations.

Tackling complex cleanup projects or unfamiliar workflows often creates specific questions about reporting and tax compliance. When you wonder how a re-categorization of past income affects a tax return, you need an answer you can trust. Our own tool, Feather AI, provides accounting and tax professionals with immediate, citation-backed answers from authoritative IRS and state sources, helping you execute your work with precision and confidence.