Cedar & Co.: A Miscoded Sweep, Undeposited Funds, and a $37.50 Reconciliation Plug
Cedar & Co. keeps checking, a savings sweep, and one business credit card in QuickBooks Online. The bookkeeper recorded the monthly $2,500 sweep from checking to savings as a 'Transfer Fees' expense on the checking side and never touched savings. A $1,780 customer payment has sat in Undeposited Funds for three weeks; the bank's lump-sum deposit for that day was categorised straight to Service Income when it appeared in the feed. Last month's checking reconciliation closed with a $37.50 difference that the previous bookkeeper cleared with a journal entry to Ask My Accountant. The feed now shows 41 new items, several of which look like duplicates of a CSV import done in January. The owner wants to close the month, and the accountant asks why cash on the balance sheet is $2,500 lower than the bank statements.
1. Explain why cash is understated by exactly $2,500 and how to correct the sweep.
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Diagnosis. A true transfer touches two balance sheet accounts. By coding the outgoing side to a P&L expense, the bookkeeper: (a) overstated expenses by $2,500, (b) understated checking by $2,500, and (c) never increased savings - because the savings-side transaction was never recorded at all. Net effect on cash: $2,500 too low. The expense is fictional; no money left the company.
Correction.
- Delete the miscoded 'Transfer Fees' expense (or edit it) and recategorise the checking-side outflow as a transfer to Savings.
- Record the savings-side inflow as a transfer from Checking - the same transfer, seen from the other account. In QBO, creating one transfer should create the paired entry; if the two sides were entered separately, make sure each points at the other account so neither sits as an orphan.
- Confirm reconciliation: the checking balance drops $2,500 in the register (it was already gone at the bank), and the savings balance rises $2,500 to agree to the statement.
Why this matters beyond the $2,500. An expense-coded sweep inflates expenses permanently, so every margin and expense-ratio report for the affected months is wrong. Check whether the error repeats monthly - the fix is then a batch correction, not a one-off.
Prevention. Set a bank rule matching the sweep amount/description to 'Transfer → Savings' so the feed never offers an expense category for it.
2. The $1,780 payment is still in Undeposited Funds while the bank deposit was booked to Service Income. What is the consequence and how do you fix it without double counting revenue?
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Consequence. The revenue has been recognised twice: once when the invoice was marked paid (the payment sitting in Undeposited Funds), and again when the bank feed deposit was categorised to Service Income. Meanwhile Undeposited Funds shows $1,780 that is not actually undeposited - it is in the bank.
Fix.
- In the bank feed, un-categorise the deposit. Its correct match is the existing Bank Deposit (or the customer payment itself, if the deposit is one customer for one amount).
- If no bank deposit exists yet, create one from Undeposited Funds that includes the $1,780 payment, dated to the bank's deposit date, and match the feed item to it. Matching moves the money from Undeposited Funds to Checking with no new income line.
- Verify: Undeposited Funds returns to $0 (or to only genuinely undeposited items), Service Income drops by $1,780, and checking agrees to the statement.
Judgment notes.
- Never delete the original customer payment to 'clean up' - that would reopen a paid invoice and lose the history.
- If the lump deposit covers several customers' payments, match the feed line to the combined bank deposit, not to individual payments.
- Turn on 'Use Undeposited Funds as a default deposit to account' (Settings > Payments) so payments land there consistently; a mix of direct-to-checking and Undeposited Funds is how this error class starts.
3. How would you investigate the $37.50 reconciliation gap and the suspected duplicate import, and what do you do about the existing plug entry?
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On the $37.50. Work the Reconcile window before closing anything:
- Check the Payments and Deposits tabs for items marked cleared in QBO that are not on the statement (or vice versa) - a cleared date before the statement end is the classic cause.
- Look for a transaction dated after the statement end that was marked cleared, and for a cleared amount that differs from the statement (transposed digits, a fee netted by the bank).
- Pull the Reconciliation report for the account for that period and compare uncleared items to anything the bank shows as outstanding.
- A $37.50 gap smells like a bank fee or a wire charge the bank deducted and nobody entered - check the statement image first.
On the existing plug. The Ask My Accountant journal entry did not fix anything; it hid a real difference in a suspense account. Once the true cause is found, reverse the plug and post the real transaction. If the cause genuinely cannot be identified, leave a documented adjusting entry with a written explanation and the statement reference - never an undocumented suspense balance carried forward, because it compounds.
On the duplicates. Before categorising anything:
- Filter the feed by amount and date and compare against the January CSV import; duplicates usually share exact amount and a date within a few days.
- Match, don't categorise: use the Match/Find match tool so an existing transaction is linked rather than a second one created.
- If duplicates already posted, delete only the duplicate - the original keeps its attachments and history.
- Going forward, do not re-import a CSV for a date range that is already in the feed; import only for accounts without a live feed.