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QuickBooks Preference Setting Application of Deposits

QuickBooks Setup by Allan A. Krist

by Allan A. Krist

A question that I am asked quite often by QuickBooks users involves its application of a customer remittance to the checking account. The user may not see the balance in the checking account increase by a corresponding amount and be concerned. The explanation is somewhat involved, but can be easily understood.

One of the important preference settings to verify prior to your use of QuickBooks is in the "Payments" category. I have previously mentioned the importance of verifying and changing if necessary the preference setting in my blog post on Getting off to the correct start in setting-up QuickBooks. The critical preference setting on deposits appears in the "Payments" category in the "Receive Payments" section of the "Company Preferences" tab. It reads "Use Undeposited Funds as a default deposit to account". The following is a screen shot of it to help you visualize it:

QuickBooks Preference Setting Application of Deposits

The setting of this preference causes QuickBooks to behave differently when you apply a remittance to an invoice. QuickBooks will either automatically apply(or add) the customer remittance to the "Undeposited Funds" account, or prompt you to enter an account to be increased with the amount of the remittance each time a receipt is recorded. The default setting of this account is to turn it on(indicated as such by checkmark appearing in front of the line).

In the first instance above QuickBooks will automatically create an account called "Undeposited Funds" in which to accumulate all payments until they are deposited. Due to this setting QuickBooks doesn't have to prompt you when each customer remittance is applied for the account to deposit the remittance to. The result is that customer payments can be applied quicker, but the trade-off is that you must eventually choose the "Banking, Make Deposits" option to tell QuickBooks that you are now removing the accumulated payments that have been made and accumulated in the "Undeposited Funds" account to transfer the funds to a bank account(usually a checking account). This is the most common scenario when a company receives multiple payments each day, and makes one single deposit of all of them to the company banking account each day. It also makes the task of reconciling a bank account easier because the deposits that appear on the bank statement are controlled by you rather than by the date and time that a remittance is received and entered. If you do the bank reconciliation yourself, then you will know of what I speak, otherwise it is your bookkeeper or accountant that has the task of reconciliation made easier.

However there are businesses that typically do not receive multiple customer remittances each day. They typically receive fewer remittances(usually of a greater amount), and less frequently than the businesses of which I spoke in the previous paragraph. Or perhaps your business might have multiple checking accounts, and a unique checking account will have the remittance applied to it depending on the customer, locale, or date a remittance is received. In both of these instances it might be less tedious for you to un-check the default preference setting and to choose the account into which a remittance will be applied each time a customer remittance is received. In this scenario the bank account is immediately increased, and it is not necessary for the user to do "Banking, Make Deposits" option each time or day a remittance is received.

The choice is up-to-you, and depends on your business pattern. You should just be aware of the impact on your workflow this preference setting will have. I can assist you in evaluating the approach in your particular circumstances. Please contact me for additional help with this information and its significance to you. Perhaps a free QuickBooks Consultation is appropriate for your business. Simply click on the link below to request your Free QuickBooks Consultation.

If you have any questions or problems with the above, please feel free to contact me. Perhaps a free QuickBooks Consultation is appropriate for your business, contact me to schedule one. Simply click on the link below to request your free consultation.

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