For many business owners receiving customer payments is a big part of the day. There are a few common errors that occur when receiving that all important payment. You have done everything right up until this point, you have a customer that has placed an order and you have sent the order out or provided the service. You then went to your computer and created and sent the invoice and are now waiting on the money to come in. You receive the money in the mail and this is where it gets tricky.

The first common mistake we see is that the owner then goes into QuickBooks and makes a deposit for the amount taken to the bank that day. You may be wondering what is wrong with this as all you can see is that the money has been recorded in QuickBooks and the money made it to the bank. However, nothing happened with the Accounts Receivable. Right now the balance due to you is still outstanding as far as QuickBooks is concerned. To avoid this error you need to go to Customers, Receive Payments, and then fill in the payment information applying it to the outstanding invoice being paid and save the transaction. Now the customer’s balance will only include any unpaid invoices or a zero balance if all invoices are paid in full. If you have already made the deposit incorrectly you can make a Journal Entry, under Company, to correct the error. You will need to Debit the income account used in the deposit and Credit Accounts Receivable and apply the payment to the correct customer.

The second common mistake is that while you have done the above step correctly, you went to the Customer and received payment, but now you don’t know where the payment went and why it is not showing up in your checking account in QuickBooks. So you make a deposit anyways so you can reconcile your bank statement at the end of the month. Unfortunately you now have doubled your income and you still don’t know how to correct the issue. This is a common error that happens when your deposits received from the customers go to the “Undeposited Funds” account located on the balance sheet. To correct this error you will need to make a Journal Entry under Company, with a Debit to the income account and a credit to the Undeposited Funds account. If you have not made any additional deposits yet then you just need to go to “Make Deposit” under Banking. There should be a window that pops up automatically asking what payments received from your customers you want to deposit. If this window does not pop up automatically then click the “Payments” button on the top bar and it will open this window for you. Then click on the payments you are taking to the bank and are going to deposit together. Check your dates and save the transaction.

The “Undeposited Funds” account is a holding account on the balance sheet for monies received and “in transit” to the bank. QuickBooks can be setup to bypass the “Undeposited Funds” account but in using the account, you are able to make and record deposits exactly how they are deposited at the bank which makes it a lot easier to reconcile your bank statements monthly.

For more information or help, please contact the Ketel Thorstenson QuickBooks ProAdvisors Team.