From Invoice to Deposit Using QuickBooks® Online
Jim Merritt - August 31, 2026
Creating an invoice in QuickBooks® Online is only the first step in recording a customer sale.
Once your customer pays the invoice, you need to record the payment correctly—and then make sure that payment reaches your bank account in QuickBooks® Online the same way it reaches your actual bank account.
That last part is where many QuickBooks® users get into trouble.
One of the most common mistakes we see is recording customer payments directly into the checking account without considering how those payments will actually be deposited at the bank. This can create problems when matching downloaded bank transactions and reconciling the bank account.
For many businesses, the better workflow is:
Create the Invoice → Receive the Payment → Put the Payment in Undeposited Funds → Create the Bank Deposit
Here’s how the process works and why it matters.
Step 1: Create the Customer Invoice
An invoice tells QuickBooks® Online that a customer owes your business money.
To create an invoice:
Select + Create.
Select Invoice.
Choose the appropriate Customer.
Verify the Invoice Date and Due Date.
Select the appropriate Product or Service.
Enter the description, quantity, rate, and other information as needed.
Review any applicable sales tax.
Verify the total invoice amount.
Select Save and Send, Save and Close, or the appropriate save option.
Before saving the invoice, take a few seconds to review it.
Make sure you selected the correct customer, products or services, dates, amounts, and payment terms.
Remember: Creating an invoice does not mean that you have received the customer's money.
The invoice establishes the customer's outstanding balance in Accounts Receivable.
That distinction becomes very important in the next step.
Step 2: Receive the Payment Against the Invoice
When your customer pays you, don't create another sales transaction to record the money.
Instead, record a payment against the existing invoice.
This tells QuickBooks® Online that the customer has paid all or part of the amount they owed.
To record the payment:
Select + Create.
Select Receive Payment.
Choose the Customer.
Enter the Payment Date.
Select the appropriate Payment Method, such as check, cash, ACH, or another method.
Enter a reference number if appropriate.
Select the invoice or invoices being paid.
Verify the Amount Received.
Review the Deposit To field carefully.
That last step is important.
Instead of automatically depositing the payment directly into your checking account, you may want to select Undeposited Funds.
What Is Undeposited Funds?
Think of Undeposited Funds as the electronic version of the desk drawer, cash drawer, or envelope where you temporarily hold customer checks and cash before taking them to the bank.
The money belongs to your business.
You've received it from the customer.
But you haven't necessarily deposited it into your bank account yet.
That's exactly what the Undeposited Funds account is designed to represent.
When you receive a payment and select Undeposited Funds in the Deposit To field, QuickBooks® Online marks the customer's invoice as paid while temporarily holding that payment until you're ready to create the actual bank deposit.
Why Should You Use Undeposited Funds?
The biggest reason is simple:
Your deposits in QuickBooks® Online should match your deposits at the bank.
Suppose you receive three customer checks:
Customer A pays $500
Customer B pays $750
Customer C pays $250
You take all three checks to the bank and make one deposit for:
$1,500
Your bank statement will show one deposit for $1,500.
If you recorded those three payments directly into your checking account as separate deposits, QuickBooks® Online could show:
$500 + $750 + $250
while your bank shows:
$1,500
The total amount is the same, but the individual transactions don't match.
That can make matching transactions from the bank feed and reconciling your bank account more difficult than necessary.
Instead, put the three payments into Undeposited Funds.
Then create one bank deposit in QuickBooks® Online for $1,500, containing those three payments.
Now your books match what actually happened at the bank.
That's the goal.
Step 3: Create the Bank Deposit
Once you actually deposit the customer payments into the bank, you're ready to create the corresponding deposit in QuickBooks® Online.
Select:
+ Create → Bank Deposit
Then:
Select the bank account where the money was deposited.
Enter the actual Deposit Date.
Review the customer payments available from Undeposited Funds.
Check the payments that were included in the actual bank deposit.
Verify that the total in QuickBooks® Online equals the amount deposited at the bank.
Save the deposit.
This moves the selected payments from Undeposited Funds into your bank account in QuickBooks® Online.
The result should mirror the real-world transaction.
If the bank shows a $1,500 deposit, QuickBooks® Online should show a $1,500 deposit.
Why This Makes Bank Reconciliation Easier
Bank reconciliation is much easier when your QuickBooks® transactions match the way transactions appear on your bank statement.
If your bank statement shows one $1,500 deposit, you want to be able to find one $1,500 deposit in QuickBooks® Online.
When individual customer payments are deposited directly into the checking account instead of being grouped properly, you may have to spend time trying to determine which combination of transactions equals the deposit shown by the bank.
Using Undeposited Funds properly provides a cleaner trail:
Invoice → Customer Payment → Undeposited Funds → Bank Deposit
You can see:
What the customer owed
When the customer paid
Which invoice the payment was applied to
Which payments were grouped together
When those payments were deposited
Which bank account received the money
That makes troubleshooting much easier when something doesn't look right later.
Don't Add the Bank Feed Deposit as New Income
Here's another common mistake.
You've already:
Created the invoice.
Received the payment.
Created the bank deposit.
Then the $1,500 transaction downloads from your bank into QuickBooks® Online.
What should you do?
In most cases, you should match the downloaded bank transaction to the deposit already recorded in QuickBooks® Online, rather than adding the downloaded transaction as a brand-new sale or income transaction.
If you simply add the downloaded deposit as income after you've already recorded the customer transactions, you can potentially duplicate the activity in your books.
When working in Bank Transactions, always take the time to determine whether QuickBooks® Online is showing you a transaction that has already been recorded.
Match when appropriate instead of automatically clicking Add.
That one habit can prevent a lot of cleanup work.
When Undeposited Funds May Not Be Necessary
Undeposited Funds is especially useful when you're manually recording customer payments that will later be combined into one bank deposit.
However, it isn't necessary in every situation.
For example, if a single customer payment is deposited individually and appears individually at the bank, recording the payment directly to the appropriate bank account may be appropriate.
The workflow can also be different when payments are being processed through QuickBooks® Payments, because QuickBooks® Online can handle portions of the payment and deposit process automatically.
The important principle is this:
Record the transaction in QuickBooks® Online based on what actually happened.
Don't use Undeposited Funds simply because someone told you that every payment must go there.
Use it when it helps QuickBooks® Online accurately reflect how customer payments are grouped and deposited into your real-world bank account.
Watch Your Undeposited Funds Balance
Undeposited Funds should normally represent payments you've received but haven't yet included in a recorded bank deposit.
If you look at Undeposited Funds and find payments that have been sitting there for weeks, months, or even years, something may be wrong.
Common causes include:
A payment was received but the bank deposit was never created.
A deposit was entered separately instead of using the payments sitting in Undeposited Funds.
A downloaded bank transaction was added instead of matched.
Payments were duplicated.
Old transactions were changed or deleted.
Payments were applied incorrectly.
A large or unusually old Undeposited Funds balance is something worth investigating.
Don't simply delete old transactions to make the balance disappear. Determine what happened and correct the accounting trail properly.
A Simple Rule to Remember
When you're working with customer invoices and payments in QuickBooks® Online, think about the process in four steps:
1. Invoice
The customer owes you money.
2. Receive Payment
The customer pays you.
3. Undeposited Funds
You're holding the payment until it is included in the appropriate bank deposit.
4. Bank Deposit
The money is deposited into your bank account.
When the transaction downloads from your bank afterward, match it to the deposit already recorded whenever appropriate.
Following this workflow keeps Accounts Receivable accurate, keeps your bank activity organized, and makes reconciliation much easier.
Need Help Getting Your QuickBooks® Online File Cleaned Up?
If your Undeposited Funds account has old transactions, your customer balances don't look right, or your bank deposits don't match what's appearing on your bank statements, don't ignore the problem.
These issues tend to become more difficult to correct over time.
QuickTrainer, Inc. provides one-on-one training and support to help QuickBooks® users understand not only what buttons to click, but why the accounting process works the way it does.
Whether you need help with invoicing, customer payments, Undeposited Funds, bank deposits, bank transactions, reconciliations, or cleaning up an existing QuickBooks® Online company, we're here to help.
QuickTrainer, Inc. — Training and Support for QuickBooks® Users
Let QuickTrainer give you back your time.
📞 Call QuickTrainer at 910-338-0488 📧 Email: [email protected] 🌐 www.qti-wilmington.com
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