clearing accounts

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#1
juro  
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#12000 Undeposited Funds is a clearing account used in QB & QBO. The balance needs to be zero at end of each month. My client has an end of year balance of $22,355.56.

But what about liability account #2610 "New Bank Acct Opening Dep"?
My client has an end of year balance of $25,387.99.
The client's Customer invoices credit this account for the funds used to establish a new checking account. This is a deposit, so it is a liability.
 

#2
makbo  
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juro wrote:#12000 Undeposited Funds is a clearing account used in QB & QBO. The balance needs to be zero at end of each month. My client has an end of year balance of $22,355.56.

No, the balance does not need to be zero at the end of each month. Where did you get that? However, sometimes clients mistakenly record invoice payments to Undeposited Funds and then record the bank deposit in duplicate instead of depositing the undeposited funds.

I don't get the question you are asking in the second part. Look for "Opening Balance Equity" for more info on how QB treats entries for existing accounts when starting the company file.
 

#3
Doug M  
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juro-think of undeposited funds as cash in the drawer. Received, but not yet deposited to the bank account. IMHO, undeposited funds is a function that should be turned off. You record the collection once, instead of two steps via undeposited funds.
 

#4
juro  
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makbo wrote:No, the balance does not need to be zero at the end of each month. Where did you get that?



Shows up on the balance sheet, and i need to show document support for it. Easier on me if it is zero.
 

#5
juro  
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Doug M wrote:juro-think of undeposited funds as cash in the drawer. Received, but not yet deposited to the bank account. IMHO, undeposited funds is a function that should be turned off. You record the collection once, instead of two steps via undeposited funds.



the purpose of a clearing account is to show activity.


https://bizfluent.com/info-8517430-clearing-account-accounting.html
 

#6
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juro wrote:
makbo wrote:No, the balance does not need to be zero at the end of each month. Where did you get that?



Shows up on the balance sheet, and i need to show document support for it. Easier on me if it is zero.


The document support would be copies of posted payments not yet deposited to bank. The information is readily available in QBD and QBO, and hopefully the client maintains such records. Another purpose of Undeposited Funds is to match deposits to those with the bank, instead of having each payment listed individually as some other (CRAPPY) software packages do.

Auditors often do not understand the Undeposited Funds account until you explain it as "received funds in transit to bank." Then, they have an "Aha!" moment and all is well once they know what substantiation to look at.

Why in the world is New Bank Acct Opening Dep set up as a liability? Is it not the client's cash? I wish Intuit would reserve opening balance accounts only for accountant credentials, because the typical user has no idea how to properly use them. Opening balance accounts should net out to zero, but undeposited funds can and should carry a balance unless coincidence is that all funds have been deposited by end of period.
 

#7
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CornerstoneCPA wrote: Another purpose of Undeposited Funds is to match deposits to those with the bank, instead of having each payment listed individually as some other (CRAPPY) software packages do.[...]

Why in the world is New Bank Acct Opening Dep set up as a liability? Is it not the client's cash? I wish Intuit would reserve opening balance accounts only for accountant credentials, because the typical user has no idea how to properly use them.

Agree on the Undeposited Funds -- with any number of payment services (Paypal, Intuit Payments, Square, etc), it is common for several invoice payments to be lumped together into a single bank deposit. Undeposited funds is the cleanest way to handle that.

As for Opening Balances, they should be going to equity, not liability. In QB, when you set up the initial balance for existing accounts, it offsets to OBE automatically, and at some point all the OBE should be journaled to some other equity account, but doesn't really have to be. They discuss this in the help and support.
 

#8
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juro wrote:
makbo wrote:No, the balance does not need to be zero at the end of each month. Where did you get that?



Shows up on the balance sheet, and i need to show document support for it. Easier on me if it is zero.


Your documentation is also a schedule of subsequent deposits traced to the bank statement.
 

#9
juro  
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CornerstoneCPA wrote:
Why in the world is New Bank Acct Opening Dep set up as a liability? Is it not the client's cash?
I wish Intuit would reserve opening balance accounts only for accountant credentials, because the typical user has no idea how to properly use them. Opening balance accounts should net out to zero, but undeposited funds can and should carry a balance unless coincidence is that all funds have been deposited by end of period.



my client has its own clients who pay deposits that are used to establish checking accounts.
 

#10
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makbo wrote:As for Opening Balances, they should be going to equity, not liability. In QB, when you set up the initial balance for existing accounts, it offsets to OBE automatically, and at some point all the OBE should be journaled to some other equity account, but doesn't really have to be. They discuss this in the help and support.


What happened to entering a trial balance, completely bypassing OBE accounts and the hassle they create by people that do not know they need to clear out to zero via other G/L accounts, or eventually equity? I have been using Quickbooks almost 15 years and have never used opening balance fields unless I needed to use the QBD Loan Manager.

I guess there is a reason I pay to receive benefits of a ProAdvisor, but stopped taking the certifications. Their promoted methods are laughable at times.
 

#11
makbo  
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CornerstoneCPA wrote:What happened to entering a trial balance, completely bypassing OBE accounts and the hassle they create by people that do not know they need to clear out to zero via other G/L accounts, or eventually equity?

They don't create a hassle and do not need to be cleared out to zero, they can just be left in the Equity section of the balance sheet and you can collapse that section on reports if you don't want to see it.
 

#12
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makbo wrote:They don't create a hassle and do not need to be cleared out to zero, they can just be left in the Equity section of the balance sheet and you can collapse that section on reports if you don't want to see it.


For sake of argument, which I know you enjoy, yes, you are technically correct--they do not need to be cleared out. The intention and best practice, however, is for OBE to be cleared out to other I/S and B/S accounts.

I know a QB file was set up by a novice when OBE continues to carry a balance. I have found and fixed plenty of critical errors as a result. So yes, OBE does lead to a hassle when it contains amounts that are incorrectly categorized and a tax return is prepared using inaccurate information with incorrect equity.
 

#13
makbo  
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CornerstoneCPA wrote:I know a QB file was set up by a novice when OBE continues to carry a balance. I have found and fixed plenty of critical errors as a result. So yes, OBE does lead to a hassle when it contains amounts that are incorrectly categorized and a tax return is prepared using inaccurate information with incorrect equity.

What "critical errors"? I'm not trying to argue, I'm trying to figure out what I'm missing. First, I assume you don't mean it is a Quickbooks software error -- I currently use a company file that has had an OBE balance for years and I've never seen an error generated because of it.

As for tax return input, I only input income, assets, and liabilities into the return from QB, not equity. Let's say you have a QB standard balance sheet showing Equity and below it, three accounts: OBE, Retained Earnings, and Net Income. How does that lead to a critical error? I just want to learn.
 

#14
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If the books have been adjusted annually to the tax return and opening equity ties to what it should be then who cares if its split between a member equity account, retained earnings, and opening balance equity?

I see where cornerstone is coming from that best practices would say have OBE be zero or avoid using it in the first place but I wouldn't assume a novice did the books merely by the existence of that account.
 


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