While most users are familiar with this feature, we sometimes come across those who choose not use it (often because they are not altogether sure how it works or they think it involves extra work).
History
This feature has been standard from the earliest versions of Quickbooks. MYOB introduced this feature into their software around 2003 and decided to give it the same name, "Undeposited Funds", exactly the same term used in Quickbooks (copying is the sincerest form of flattery!). The feature is now very similar in both products.
When to use it
Receipt of Cash or cheques from customers
This is most likely the purpose for which the feature was designed. When receiving cash or cheques from customers, always receipt it to Undeposited Funds in the customer payment screen. Instead of increasing the bank balance, the value of these payments will accumulate in an Asset account called Undeposited Funds. This serves as a useful record and reminder of unbanked funds. When these cheques are deposited, the total deposit then appears as one amount in the bank account, by recording a Deposit entry. This makes bank reconciliation much easier, and also recognises that unbanked cheques are a legitimate asset to be recognised on the balance sheet.