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Novice -- undeposited funds question

If I'm looking at the P&L Statement and the Balance State for an organization and....

the P&L says the net profit for a specific period is $30,000 and the Balance Statement for the last day of the period shows $10,000 in undeposited funds,...

What does the undeposited funds mean in terms of the net profit for that period? In other words, is the net profit still $30,000 or is it potentially really $40,000 because there are $10,000 in undeposited funds?

Obviously, I'm not a bookkeeper or accountant. I am just trying to understand what the above P&L and Balance Statements mean.

And, if it matters, I believe the organization is on a cash accounting basis, not an accrual basis.

Thanks for any clues.

Reply to
BETAC-T
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"BETAC-T" wrote

Ok, remember about "double entry" bookkeeping. If you make an entry that increases an asset, the corresponding entry is a credit to either a liability (which part of the undeposited funds could be, in the form of a "pre-paid" order) or it's most likely revenue from sales that - as the term implies - hasn't been deposited yet.

The basis doesn't necessarily matter here. Cash (or check) was received and not yet deposited to the bank. It happens. Most businesses make daily deposits to help avoid having any undeposited funds, but there could always be situations in which they arise.

Reply to
Paul Thomas

Thanks!

Assuming that the undeposited funds are all revenue from sales, does that mean that when the $10,000 in "undeposited funds" is entered (because the money was received but has not yet been deposited), the corresponding revenue entries are made at the same time? In other words, even though the money is not yet deposited in the bank, the revenue it represents is already accounted for in the Profit $ Loss statement? And, when those undeposited funds are deposited, that will change the bank balances but will not change the bottom line on the Profit and Loss statement? -- the net profit or loss will stay the same, just the money will move from "undeposited funds" to whatever bank accounts the go into?

Reply to
BETAC-T

"BETAC-T" wrote

Revenue entries have already been made. The money (cash or checks) are sitting in a drawer, and have not been deposited to the bank account as of the statement date.

The entry would be to credit (a hopefully debit balance) "undeposited funds" and debit the bank

That's exactly what I'm saying. Take QuickBooks as an example, one of the default functions on accounting for payments received is to lump them to "undeposited funds" then you get to "make deposits" which moves it from undeposited funds to the bank.

Most smaller businesses don't bother with this step and just records the revenues at the same time as the bank deposit is made up.

Yup.

Reply to
Paul Thomas, CPA

Thanks again for taking the time to explain all of that. That's exactly what I was trying to figure out.

Reply to
BETAC-T

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