Diagnosing Common Errors in QuickBooks Part Two - Excessive Amounts in Undeposited Funds By

This next article deals with a very common problem in that many business owners using QuickBooks don't follow through on all three steps in entering QuickBooks information. Often, upon examining the Chart of Accounts of a new client, I will find excessive amounts in their Undeposited Funds account which typically means that their bank balances will not match their statements and reconciliation is made virtually impossible to do accurately.The ErrorThere is a three step process in dealing with customer payments. First, the invoice is created with the items, expenses, etc that you are charging your customer for. The invoice amount is then automatically put into the Accounts Receivable account anticipating that a payment will be received.Second, when the customer does pay, it must be done through using the "Receive Payments" icon. Once the customer's name is entered, you will see the list of invoices that this customer still owes you money on. You enter the amount of the payment made and check off the invoice that the customer sent the payment in for. Click on save and close and you have now officially received the payment from the customer for that invoice.But wait, the invoice now is considered paid according to QuickBooks, so the customer's balance will be what it should be. The amount however, stays in the Undeposited Funds account, which is where QB puts it after the second step. I have seen as much as four or five year's worth of received payments that have been put into the Undeposited Funds account, and yet have never been Deposited into the appropriate bank account. This third step is what many people miss. Third, you must click on the Make Deposits icon, group all the payments, checks, etc as you would do on your bank's deposit slips and put them into the account on the day you physically took those checks to the bank and deposited them. For example, if you receive ten checks and you take all ten to the bank, your bank will record the total deposit, not the individual checks and amounts. When you reconcile the bank statements, the deposits in QB should match the deposits on the statements. So if your bank statement shows a deposit of $10100, the QuickBooks deposit should have a deposit of $10100.If you have the Intuit Merchant services all the credit card transactions that have been processed will group together according to the day you processed them. You must click on the 'Get Funding Status' button which will link you to the Intuit Merchant Services site to verify that those payments have indeed been deposited. If you fail to do this in a timely manner, the information about their funding status is deleted from the Merchant Services server three months from the day you entered them and you will not be able to verify that the amounts have been funded.A Costly MistakeWhat some people have done is that they have 'forced' a deposit into the bank register when their statements don't match, and they still have the excessive amounts received in their Undeposited Funds Account. Now they reconcile the bank statements, and true, they will now tie out nicely, the financial statements will be completely wrong. How?First, if you are having your taxes prepared using the QB reports, you have now told the preparer, AND the IRS that you have been paid twice as much as you actually have. And you will pay taxes on the money that you are forcing into your bank register as a deposit, and on the money that the customers actually paid you.Second, now you have to have someone go in to correct these mistakes in the QuickBooks file by deleting the deposits forced in and applying payments received in Undeposited Funds to those deposits. This can take hours depending on how far back the issue goes and how many months need to be corrected.Third, now you have to rereconcile the accounts, because by deleting these forced deposits that you have reconciled, you have thrown the reconciliations off by the amounts you have deleted. You will have to go into the bank reconciliation screen and click on the 'Undo Last Reconciliation' button until you get to the point at which these errors began to be made. Having a professional do this for you can be upwards of $100/hour and if you calculate at about 2 hours for each month's work that can add up quickly.Can I Do It Myself?There is no fast way to do this, but this is the procedure I would follow if I were completing this project. One, print out the deposit detail record going back to the time these mistakes were made complete with the dates of each deposit, the amounts, etc.Two, use this printout and the 'Make Deposits' button to match the amounts of each deposit for each day it was deposited. Continue until you get up to the current period where you should start receiving and depositing payments correctly.Three, delete all the 'forced' deposits from the bank register. Be cautious so as to not accidentally erase the corrected deposits. Fourth, using the 'Reconcile Bank' screen click on the 'Undo Last Reconciliation' button until you get to the month where the mistakes began to be made. If there are several months or years involved here, you still have to go back to the beginning so be patient. Fifth, re-reconcile each month to its own bank statement. This is the right way to do it and you should do it this way if you at all can.Is There A Faster Way?I do not recommend doing it this way! It is much easier, faster and tempting, but doing so can lead to an IRS auditor looking closer into your books than you wish them to and staying longer than you'd like. But yes, there IS a faster way. I have to caution that I do not recommend this in any way, shape or form but here is the easy way.Choose the month at which you want to begin doing things 'right'. Let's say, October of 2008. Now, create a fake bank account called adjustment bank, whatever you'd like to call it. Go to the Make Deposits screen and click all the received funds from September 2008 to the beginning of the problem.Make one lump sum deposit for the year into that fake bank account for all those payments that have been received. If it's more than one year's worth make sure to deposit them according to whatever year the money was received.Make a general journal entry with the fake bank account and debit the fake bank account for that amount of money, the credit would be in the adjustment income account and would delete that amount. Now make that fake bank account inactive and make the adjustment income account inactive after zeroing it out.Again, I do not recommend this at all, but you are done in less than half the time it would take you to do it the right way. And remember that whichever way you decide to solve this issue, to start and to keep doing it right from now on.David Roberts, CFE, CQBPA, MBA, lives in Kissimmee, Florida with four girls, three dogs, two snakes and one wife. He has been a member of the ACFE for four years and has been studying fraud for longer than that. He is the owner of Homesoon Accounting Services which specializes in Quickbooks Consultations and Fraud Prevention and Detection.Article Source: http://EzineArticles.com/?expert=David_S_Roberts