UNDEPOSITED FUNDS – WHAT IT IS, HOW USED, WHY USED
"Undeposited funds" is used by some accounting softwares as a clearing account for payments that have been received but not yet deposited into the bank account.
For eg: You receive 5 cheques from 5 customers, instead of directly debiting the amount in your bank account you choose to debit the amount in the undeposited funds account till the cheques are cleared by the bank and the amount is actually credited to your bank accounts.
The purpose of using the "undeposited funds account" is that it eases the process of bank reconciliation. The cheques received but not deposited in the bank can be easily calculated at any time.
Further, the date when the cheques are received is entered in the system, we can keep a track of how much time is generally taken for clearance of cheques. Cheques pending for clearance for a long time can be monitored.
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