What Is Undeposited Funds? And Why You Should Never Use It!

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What is Undeposited Funds in QuickBooks? Why should you avoid using it—and what’s a better alternative? In this in-depth tutorial, Seth David from Nerd Enterprises walks you through the pitfalls of using undeposited funds, especially as your business grows and payment methods multiply.

You’ll learn:

💰 The original purpose of undeposited funds and why it’s become problematic
💰 How multiple payment gateways complicate your accounting
💰 The risks of inconsistent processes and decision fatigue
💰 Why using clearing accounts for each payment gateway creates a cleaner, more auditable workflow
💰 Step-by-step demonstrations in QuickBooks, including setting up accounts, reallocating payments, and reconciling fees
💰 How to ensure your books are accurate, transparent, and easy to manage—no matter how many transactions you process

Whether you’re a bookkeeper, business owner, or accountant, this video will help you streamline your workflow and avoid common mistakes. Join the conversation in the comments or in the “Talk Nerdy to Me” community for more tips and support!

Timestamps / Chapters:

00:00 - Introduction: What is Undeposited Funds?
00:23 - The Original Use Case for Undeposited Funds
00:42 - Why Even Simple Use Cases Can Be Problematic
01:05 - The Importance of Consistent Processes
01:26 - When Inefficiency Leads to Better Clarity
01:54 - The Mess of Multiple Payment Gateways
02:15 - Demonstration: Making a Deposit in QuickBooks
02:41 - Sorting and Grouping Payments by Method and Date
03:14 - What Are Undeposited Funds? (Balance Sheet Overview)
04:09 - Why Undeposited Funds Don’t Work for Complex Setups
06:12 - The Alternative: Using Clearing Accounts
06:42 - Setting Up Payment Gateway Accounts in QuickBooks
07:19 - Addressing CPA Concerns About Account Types
07:54 - Recording Deposits and Payments Out of Gateways
08:37 - Demonstration: Reallocating Payments to Clearing Accounts
11:13 - Checking the Balance Sheet After Reallocation
12:21 - How Payment Gateways Feed Into Bank Accounts
14:09 - Example: Processing Stripe Fees and Deposits
16:04 - Booking Fees and Reconciling Accounts
18:22 - The Big Picture: Managing Multiple Gateways Efficiently
22:18 - Why This Workflow is More Effective (Audit Trail)
23:58 - Final Thoughts & Community Invitation

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This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Nerd Enterprises, Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Nerd Enterprises, Inc. does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers and viewers should verify statements before relying on them.