Short answer: You do not have to use Undeposited Funds. It is optional. Turn it on if you take physical checks or cash and deposit them later as a batch. Skip it if almost every payment is online, or if you record a payment on the same day it hits the bank.
Two different things
People mix these up, especially when coming from QuickBooks.
The account is an asset on the Chart of Accounts (often 1050, sometimes 1011 or another number). It is a holding bucket, not a bank account.
The workflow is a setting. Until you turn it on, recording a check posts straight toward the bank account you pick. Having the account on the chart does nothing by itself.
If the account exists and the toggle is off, payments do not sit in Undeposited Funds.
When to turn it on
You collect paper checks or cash and take them to the bank later
One deposit slip covers several payments
One check covers more than one lot (you record one payment per lot, then deposit them together)
The point is to match the bank: record “we received it” first, then “it hit the bank” when you deposit.
When you can skip it
Residents pay online (Stripe or ACH). Those already have their own clearing path. See Stripe & WAB Accounting.
You record a check and it is already in the bank the same day
You imported years of bank history into checking and you are not taking paper checks going forward
Skipping it is simpler. The tradeoff is that a recorded check can make checking look high until the deposit actually clears.
How to turn it on
Add an Asset account named Undeposited Funds if you do not already have one. Chart of Accounts is under Financial Dashboard. Default number is 1050. Another number is fine if that is what you used in the old system.
Go to Financial Dashboard → Bank Settings → Advanced Settings.
Find Manual Checks - Undeposited Funds.
Choose the Undeposited Funds asset account (or leave Auto if you use 1050).
Check Enable two-step check workflow (record receipt, then mark deposited).
Save. Optional: set the undeposited-check email reminder (days) if you want a nudge when a check sits too long.
The setting is org-wide. You turn it on once.
Day to day, after it is on
Record the payment on the property or from Billing & Collections → Record Payment. That pays down the owner and puts the money in Undeposited Funds. Books: Dr Undeposited Funds / Cr Accounts Receivable.
Take the check(s) to the bank.
Mark Deposited from Billing & Collections → Undeposited Payments. Select the payments on that deposit slip, pick the bank account and deposit date. Books: one entry, Dr Checking / Cr Undeposited Funds.
Match the bank line when it appears on Transactions or in the Financial Inbox. Do not categorize that deposit as income. The owner payment already handled A/R.
One check covering several lots: Record a Single Payment → Multiple Lots.
Opening balances and QuickBooks leftovers
If the old system still had a balance in Undeposited Funds on the cutover date, enter that amount on the Undeposited Funds asset when you post Opening Balances. Then use Mark Deposited when those checks actually hit the bank.
If that leftover is $0, you can still keep the account and leave the workflow off until you need it.
If you already imported bank history into checking: do not also run those old deposits through Undeposited Funds. That would double-count cash. Turn the workflow on only for new checks you receive after cutover.
What not to do
Do not categorize a bank deposit as dues income. The payment already posted.
Do not pick Undeposited Funds as the income category on a bank line. It is a clearing account, not revenue.
Do not treat Undeposited Funds as a second checking account on the dashboard. It is money received, not yet banked.
Do not enable the workflow and then also type a deposit bank on every payment as if it already cleared, unless you are marking it deposited in the same step.
Related articles
Financial Inbox (match the deposit)
Stripe & WAB Accounting (online payments, different clearing)