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justdave72
January 5, 2025
Question

How do I refund a payment which is still in Undeposited Funds?

  • January 5, 2025
  • 1 reply
  • 0 views

I received a check from a customer. The invoice was marked paid and the check went into Undeposited Funds.

When I went to make the deposit, the check was refused by the bank.  It did not get deposited and bounce, they just didn't accept it.  From the customer's perspective, I want to treat this like a bounced check (i.e. they get a new invoice showing a check bounced and have to pay it again).  But since the money never actually got deposited, how to do I get it out of Undeposited Funds?  Deleting the payment would reopen the original invoice (and not acknowledge that the customer attempted to pay). Since I've already sent him a receipt saying he paid, it feels like he should get a new invoice with the refused check instead of reopening the original invoice.

1 reply

R
RoseJillB
January 5, 2025

Hi there, @justdave72.

 

Here are some steps to record the refund transaction in QuickBooks Online (QBO). In your case, we can follow the bounced check process to create a record, and balance your accounts.

 

First, we have to unlink the payment to reopen the customer invoice transaction. This way, we can associate it with the new payment check of the customer. Before that, let's ensure you have turned off the automation to automatically apply credits to avoid applying credits to the next invoice you create for the same customer. Then, proceed with the steps below:

 

  1. Go to the Sales menu and navigate to the All Sales tab.
  2. Locate the payment transaction associated with the invoice and hit Edit.
  3. In the transaction window, review the amount and uncheck it.
  4. Click Save and Close, and select Save as credit from the prompt window.

 

Second, we can create a Journal Entry (JE) to match the bounced check from the Undeposited Funds (UF). Doing so will offset and balance the account. Here's how:

 

  1. Click the + New icon and select Journal Entry.
  2. From the Account field, Credit the Undeposited Funds and Debit the Accounts Receivable. Make sure to enter the same amount from both accounts to what amount is in the check. If you're unsure about using a JE, you can consult your accountant for guidance.
  3. Select Save and Close.

 

Now the previous payment will show as an unapplied entry. In this, we'll have to match this to the JE we recently created using the Receive Payment option. I added a visual reference below.

 

Lastly, don't forget that QuickBooks offers various financial reports that can provide insights into your business. Here are some resources that can help:

 

 

Know that the Community always has your back whenever you need assistance in recording payments in QuickBooks, @justdave72. I’ll keep this thread open for it so you can post it anytime you need help. Have a good one.

J
justdave72Author
January 5, 2025

Okay, so now I have both the check that didn't get deposited and the journal entry listed in my "available to deposit" list when I create a new bank deposit. That only fixed the balance on Undeposited Funds, it didn't get the check out of the "to be deposited" list, which is back to my original problem. (And actually added a second bogus item to the undeposited list).

A
AdonL
January 5, 2025

We appreciate your prompt and detailed response, justdave72. I can help you clear your Undeposited Funds account in QuickBooks Oline (QBO).

 

To clear both the check and Journal Entry (JE) from undeposited funds, create a deposit for the check and then modify the JE to credit your bank account. These actions ensure that your financial records accurately reflect the actual cash flow. I'll guide you through the process.

 

First, create a deposit:

 

  1. Go to + New.
  2. Select Bank Deposit.
  3. From the Account dropdown, choose the account you want to put the money into
  4. All transactions in your Undeposited Funds account appear in the bank deposit window, select the checkbox for the transaction you want.
  5. Hit Save and close.

 

Next edit the journal entry. Here's how:

 

  1. Open the Journal Entry you've previously created.
  2. From the Account field, Credit the bank account you're using and Debit the Accounts Receivable.
  3. Select Save and Close.

 

Despite these changes, please keep the JE and the bounced payment (unapplied payment) linked. You may refer to these helpful resources for more info on the topics above:

 

 

For future reference, refer to this article on ensuring your accounts match your bank statements: Reconcile an account in QBO.

 

We want to help you make your financial processes easier and clearer. Please comment again if you have any questions about handling checks or running reports. We'll ensure you have a smooth experience with QuickBooks. Have a great day ahead!

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