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Receive Payment vs Bank Deposit in QuickBooks - Thomas Kim from Tabular LLC

Money, money, money. So you got money coming in and I've seen this happen quite a few times where the person handling the QuickBooks, handling the books, they don't understand the difference between receive payment and bank deposit. It's very important to understand the difference between these two, both on the QuickBooks level and also just at a conceptual accounting level. Let's dive right in.

Receive payment is only for invoices already posted in QuickBooks. So, let's say that you build a client for your services, goods, whatever. That term's 15 days, 30 days, whatever, goes by, and you get the money. Nice. Thank you, Mr. Client. Then, you hit receive payment. That's when you would use that as opposed to bank deposit, and I'll show you why in a minute, because you use receive payment to make sure you count them against the corresponding invoice. You relieve that invoice balance, you relieve the AR balance, the accounts receivable balance, and automatically anything that's invoiced, anything that says accounts receivable will hit up your income revenue sales side, right?

Bank deposit is for depositing funds not tied to invoices. So, if you're a cash business, if you're a store, brick and mortar retail, e-commerce, then you have a lot of customers, you're selling widgets or posters or t-shirts. And so you're just doing daily or weekly sales batches, something like that, right? So, it's not tied to invoices, that's something where you should probably be using bank deposit. Something like that.

There was also a thing called undeposited funds, which probably isn't as relevant as it used to be. But very quickly, what that was, when you had a bundle of checks from clients coming in and you would hit receive payment, receive payment, receive payment for each of those clients, right? And maybe today or tomorrow is not the day to go to the bank because you have a stack of checks, but you're just going to hold onto it for whatever reason. Maybe in three days, maybe in a week, you're going to go to a bank and deposit it, right? So that's when you use undeposited funds because it's that time gap between when you received the payments and also when you go to the bank and it gets posted into your bank statement.

We're going to take a look at how this looks like in QuickBooks. I'm going to show you two different ways. Well, I'm going to show you first the bank deposit, which is the wrong way, in this case, because I've seen this so many times where the person handling the books would be doing their work, thinking that this is the right way. Maybe they just weren't trained properly. So, they're using the bank deposit to record client payments that are for invoices, right? So, they're mimicking all the steps, but of course, you're starting off with the wrong foot so it's not going to be right. So on the bank deposit screen, they're hitting up the client, they're hitting up the sales account, they're hitting up the amount, the date, that's going to the right bank account. They've got like four out of five things correct but the one thing they got wrong was the entire transaction. Though, of course, it's not going to be right if you're using bank deposit in this capacity.

As opposed to looking at receive payment, you got much better things going on. It's much more tighter. You're seeing the payment date, which deposits going to, the total amount of the funds, which is, let's say the amount of funds received in the one check, it's for $5,000. It's going to relieve the balance of these two, what's the total of the, the total of the transaction is like, "Oh no, do I need to edit this video? I hope not." Thirty, 35, 5700, which leaves the balance of everything here, right? Yes it does. And so the balance of these two invoices will be relieved, there'll be zeroed out. AR itself for this client will be zeroed out as if it's the only two invoices that this client needs to pay off. And of course, because it is AR because it is invoices, they're tied to revenue, they're tied to income, they're tied to sale, you don't need to worry about that part. So I hope this was helpful. Thank you for watching. My name is Thomas Kim, I'm based here in New York City. Drop me a line if you have any questions. Cheers.

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