Authored by: Rod Washausen, CPA.  Rod is an accountant in the Logan office of Cook Martin Poulson, PC.  He specializes in the taxation of small businesses and individuals as well as QuickBooks setup and training.  Rod is a CPA in Utah, Missouri and Illinois and a Certified QuickBooks ProAdvisor.

QuickBooks uses the Undeposited Funds account to hold customer payments and receipts until you are ready to deposit them into your bank account.  It is one of the most misunderstood accounts in QuickBooks.  However, the Undeposited Funds account will make your job much simpler when it’s used correctly.

You have two options when processing your Sales Receipts and Payments received.  One way is to post the receipts and payments directly to your bank account, either through the register or using the “Record Deposits” window.  The second choice is to collect the payments and receipts in the Undeposited Funds account and then later make the deposit to the bank account. 

For those who only deposit one check at a time, the direct method may work just fine.  However, in reality most of us deposit several checks at once.  Entering each payment directly makes reconciling your bank statement a real chore because you have to go back (sometimes much later) and figure out which payments and checks constitute each deposit.  Fortunately, the designers at Intuit created the “Undeposited Funds” account to alleviate this problem.

Think of the Undeposited Funds account as a bank bag or cash drawer that you would keep your checks and cash payments in until you deposit them at the bank.  You’ve rung up the sale and collected the payment, but you haven’t deposited the money yet – you’re holding on to it until you make your weekly bank deposit.  That’s exactly what the Undeposited Funds account represents when it is used correctly. 

Using the Undeposited Funds feature is automatic when the preference is enabled in QuickBooks.  To enable this feature, you go to Edit -> Preferences and select the “Payments” sub-menu on the left hand side.  Next, select the “Company Preferences” tab.  At the top, select the box that says “Use Undeposited Funds as a default deposit to account”.

Once you’ve enabled the Undeposited Funds account, the proper process of processing your accounts receivable is:

1. Create and invoice, sales receipt, or statement charge
2. Receive payments from your customers (and apply them to the appropriate invoice, if applicable)
3. Place the payments in the Undeposited Funds account (Note: QuickBooks will do this automatically for you)
4. Use Make Deposits to group multiple payments into a single deposit in the check register, which then matches the deposit amount on your bank statement

When you follow the proper procedures in QuickBooks, your accounts receivable reports will be correct, you will be able to easily reconcile the deposits on your bank statement, and there will be a zero balance in Undeposited Funds.  If your A/R reports aren’t correct or there is a balance in Undeposited Funds even though you’ve deposited all of your customer payments, then something’s gone wrong.

Some users make a mistake when they follow steps #1 and 2 above, but then do not group the payments when making out their bank deposits.  They instead go back to the “direct” method and enter deposits directly into the checking register or the Make Deposits window using an income account.  When this happens, your income is doubled and your assets are overstated.  If this problem isn’t caught by your tax preparer, you run the very real risk of paying tax on twice as much income!  Since your receivable reports will be correct, the easiest way to see if this is happening to you is to check the balance in Undeposited Funds by running a Balance Sheet report.  Alternatively, select “Make Deposits” on your home page.  The Payments to Deposit window should appear if you have payments waiting to be deposited.  (If nothing pops up, click the “Payments” icon at the top of the Make Deposits window just to be sure).

QuickBooks is a great program when it is used correctly.  However, when something’s gone awry in the process it can be frustrating to figure out what the problem is and how best to fix it.  If you need any help setting up QuickBooks or fixing existing problems, feel free to contact us and we’d be happy to help!

Authored by: Rod Washausen, CPA.  Rod is a Senior Accountant in the Logan office of Cook Martin Poulson, PC.  He specializes in the taxation of small businesses and individuals as well as QuickBooks setup and training.  Rod is a CPA in Utah, Missouri and Illinois and a Certified QuickBooks ProAdvisor.

What is a portable file?  When should an accountant’s copy be used?  What’s the difference between each kind of file?  There are several options to select from when creating a copy of your QuickBooks company file.  This article will describe each file type and when each is appropriate to use.

QuickBooks Company File (.QBW)

This is the working copy of your company file.  You should not send a copy of this file directly to your accountant or make backups by copying this file. 

Backup Copy (.QBB)

This file type should be used for regular backups of your company file.  The backup contains everything you need to re-create your company file and QuickBooks environment, including all of the QuickBooks files (templates, letters, logos, images, etc.) related to your company file.  It is a large file and thus is not suitable for emailing or transferring to us. 

If you do choose to use this file type to send to us, please note that you will have to manually enter all changes that we make to your file.  If you wish to restore your data from our copy, any changes that you have made since you created the backup copy will be lost.

Backups should be made periodically in case of hardware failure, software corruption or other data loss.  Ideally, you should backup your company file to a CD, DVD, flash drive, or external hard drive.  If you choose to store your backup company files on your hard drive, you will most likely lose all of your company data in the event of a hard drive failure.

Portable File (.QBM)

A portable company file is a compact version of your company file that is designed for transferring your company data between computers as an email attachment.  You may use a portable company file when you need to copy your company data to another location or send it to another person.   For example, you may want to work at home by sending the file to yourself as an email attachment and then opening the file on your home computer. 

The Portable Company File is a highly compressed version of your company file and only contains the raw data without any supporting files.  It is not recommended to use the Portable Company file for your regular backups.  It was created solely to allow faster transfers of data files over the Internet. 

The Portable Company file could be as small as one sixth of the size of your company file, depending on the size of the file.  They are created and restored in a similar way to creating and restoring a backup copy.

While intended to be used as an email attachment, you should not use a portable company file to send us your year-end tax preparation or accounting work.  Due to security concerns, sending your QuickBooks data as an unsecured email attachment is not recommended.  We have software that will allow you to securely upload your backup file or accountant’s copy directly to our servers in order to ensure that other individuals will not be able to gain access to your confidential company data.

Cook Martin Poulson prefers that you upload a full backup copy or accountant’s copy, depending on the nature of the service we provide to you.  Your accountant can tell you which version they prefer.

Accountant’s Copy File (.QBX, .QBA)

An Accountant’s Copy is a version of your company file that we can use to make changes to your data while you continue to work. When we are done adjusting your file, we can send our changes back to you for easy importing into your working company file.

When you create an Accountant’s Copy, you set what is called a “dividing date”.  You will be able to work with all transactions dated after the dividing date, and we will be able to work with transactions prior to that date.  For example, for year-end tax preparation purposes you would select December 31 of the prior year as the dividing date.

There are some limitations to the things that we can adjust with an Accountant’s Copy file, and thus it may not be suitable for all companies.  For example, we cannot add, edit, void or delete payroll, estimates, sales orders, transfers of funds between accounts, or inventory build assemblies. 

Your accountant can tell you if they prefer you to upload an Accountant’s Copy or backup file to us.

Please note that if you cancel the Accountant’s Copy after sending it to us, you will not be able to import our changes back into your company file.  You will have to instead manually enter all changes.

 If you have additional questions regarding QuickBooks or QuickBooks files please feel free to contact the professional you work with.