Should You Clear Undeposited Funds With a Journal Entry in QuickBooks Online?

Published October 19, 2026 · LedgerMedic

No. A journal entry posted to Undeposited Funds changes the balance but does not touch the payments underneath it. Those payments stay in the account, still waiting to be deposited, and the balance no longer equals what they add up to. The right fix is to put the real payments into a real deposit, or to correct the ones that should never have been there. If a journal entry was already posted, find it, reverse it, then do the fix below.

The manual fix, step by step

1. Find any journal entry already posted to the account. Open Reports, run Transaction Detail by Account, set the period to All Dates, and use Customize to filter the account to Undeposited Funds. Look for rows with a transaction type of Journal Entry. Note the date, amount and the account on the other side.
2. Check the period is open and the entry is not reconciled. If it falls in a period your accountant has closed, stop here and ask them how they want it handled. That is their decision, not something to override from the report.
3. Reverse it. The cleanest way is to open the entry and delete it. If you would rather keep a record of the mistake, create a new journal entry with the same accounts and the debits and credits swapped, dated today, with a memo that says what it reverses.
4. Open the Bank Deposit screen. Choose + New then Bank Deposit and look at the payments listed under Undeposited Funds. These are the ones the journal entry was hiding.
5. Match each one to the bank. For every payment, decide whether the money reached your bank. Use the bank statement or the processor's own settlement report. Group the payments that landed together into one deposit whose total equals the bank line to the cent. Add the processor fee as a negative line to your fees expense account if the bank received the net amount.
6. Deal with the leftovers. A payment that never reached the bank is either a duplicate entry (void or delete it after comparing both copies) or money that was never collected. Do not deposit it just to make the list empty.
7. Reconcile the bank account again and check the Undeposited Funds balance now equals the payments that really are still in transit.

This is slower than one journal entry. It is also the only version where each payment is tied to the deposit it came from, which is what a reviewer will look for later.

Why the shortcut backfires

• The payments are still listed. The balance says zero while the Bank Deposit screen still shows payments waiting. The next person to build a deposit may pick them up, which pushes the balance negative or double counts income. See why Undeposited Funds goes negative.
• The cause is hidden. If the real problem was a bank feed line added instead of matched, the journal entry covers it and the habit continues. Why the account keeps growing covers how to find the habit.
• It is hard to spot later. A journal entry has no customer, so it sits under a blank name in reports. See a balance with no payments to deposit.

When a journal entry is reasonable

Rarely, and only for something that is not a payment: an opening balance when a company file is first set up, or a correcting entry your accountant specifies for a period that is already closed. If you are not sure which of these applies, assume it does not and use the deposit route above.

Doing it faster

The slow part is finding everything. The free checker sorts a pasted register by age in your browser, with no signup. Clearing an old backlog covers the order to work through it.