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Dec 16, 202310 min read

Mapping Marketplace Facilitator and Payment Processors Revenue to the Undeposited Funds Account

Updated: Jul 14

Mapping Marketplace Facilitator and Payment Processors to the undeposited funds account is an essential accounting practice that serves several important purposes. Undeposited funds is a temporary holding account within accounting software, where funds are recorded before they are deposited into the company's bank account (funds in transit). The undeposited funds account should be reconciled monthly to the Income Statement.


Whether you are a restauranter, service business or an online or offline retail business. I can assist you in daily, weekly or monthly revenue and inventory reconciliation. Clean up and organize your sales into valuable, manageable data; stay in compliance with sales tax obligations, and maintain GAAP compliance.


QuickBooks Online provides the software. I provide expert guidance and support. Contact me or Schedule a 30 minute free consultation


Below is a list of reasons why this practice is important:


Accurate Cash Flow Reporting:

By using the undeposited funds account, you can accurately reflect your company's cash flow. It separates the revenue received from the time it is earned or collected from customers to the time it is deposited into the bank.

Matching Revenue with Bank Deposits: < Required for QuickBooks Online

Marketplace facilitators or merchant processors often aggregate payments from multiple days into a single deposit to the company's bank account. (This accounting practice should be avoided. Sales terminals should be batched daily and deposited by the processor to your account accordingly. If not, you should file a complaint: PCI Security Standards Council – Protect Payment Data with Industry-driven Security Standards, Training, and Programs

Mapping revenue to undeposited funds helps ensure that the accounting records match the actual bank deposits, while also ensuring Sales Tax and Nexus tracking by EOM.

Transaction Clarity:

It provides clarity in your financial records by clearly showing that certain funds have been collected but not yet deposited into the bank. This distinction helps in understanding the liquidity position of the business.

Bank Reconciliation:

The undeposited funds account facilitates the reconciliation process. Reconciling the undeposited funds account with bank statements helps identify any discrepancies between recorded transactions and actual deposits. When reconciling your bank statements, it is essential to have accurate records that reflect the timing and amount of deposits. By using the undeposited funds account, you can easily reconcile your accounting records with the bank statement. Journal Entries should be used sparingly and avoided in sales tax reconciliation.

Segregation of Duties:

Separating the collection of funds from the actual deposit into the bank account is a good internal control. It allows for a segregation of duties, reducing the risk of errors or fraudulent activities.

Timing Differences:

Sometimes there may be a delay between the time a sale is made and the time funds are deposited into the bank account. The undeposited funds account helps in tracking this timing difference accurately.

Financial Reporting:

Accurate revenue recognition is crucial for financial reporting. Mapping revenue to undeposited funds ensures that revenue is recognized when it is earned, aligning with accounting principles.

Compliance:

Following best accounting practices and maintaining accurate records is important for regulatory compliance and financial transparency. Properly accounting for undeposited funds contributes to the overall accuracy and reliability of financial statements. Sales Tax obligations, and Revenue reconciliation will align your records to your 1099K at year end.


In summary, mapping revenue to the undeposited funds account is a valuable accounting practice that enhances accuracy, transparency, and control over a company's financial transactions, especially when dealing with transactions processed through marketplace facilitators or merchant processors.


Monthly Reconciliation:


What they are doing now and why?

These are not all service items, nor income and sales tax is not an expense. Deposits made to a clearing account will not match bank feed transactions!


  • Payment Processor (NOT LIABLE TO PAY SALES TAX) If not mapped to undeposited funds, payout deposits from these sources will be an "adjusted" gross sales; sales less fees, *plus sales tax collected and any shipping income/deductions, discounts, chargebacks and so forth.

  • Marketplace Facilitator (LIABLE FOR SALES TAX PAYMENTS) If deposits are not mapped to undeposited funds, deposits from these sources will include "adjusted gross sales"; sales less fees, refunds, allowances, discounts, shipping expense, as well as, sales tax, and plus shipping income.

  • Monthly Reconciliation Documents: Request a Monthly Transaction History Report (CSV or Excel): a detailed list of the transactions that occurred in the seller account during a specific date range which includes, gross income, net income, merchant fees, sales tax collected/paid and any shipping income/deductions, discounts, chargebacks, and allowances, along with and any other statements with a beginning and ending balance retained by the merchant, as well as, a current inventory balance to ADJ COGS on a monthly basis, if applicable and the customer data base for easy Excel Spreadsheet sync, for your records and future marketing data.



Types of Marketplace Facilitators and Payment Processors:


Quickbooks Payments: Payment Processor Utilizes an invoice or a sales receipt, emailed to the customer. Sales tax is check marked on the document (according to your sales tax setup and products and services setup "SEE THE MATH") and categorized to the balance sheet, therefore the gross deposit is correct and no adjustment for sales tax is necessary. Fees are automatically distributed to merchant fees expense. With Autopay: available when the client sets up a recurring invoice for their customers. Autopay isn’t available for invoices that recur daily or are over $5,000. Changes made to the amount on the recurring invoice cancels the Autopay feature and a new recurring invoice must be created and accepted by the client.

GoPayment: Payment Processor An invoice or sales receipt is generated from client input and sales tax selected, no adjustment for sales tax to the gross deposit is necessary.  Fees are automatically distributed to merchant fees expense.

Z tape Daily Register Sales: Payment Processor

Sales tax is check marked and categorized to the balance sheet on a Daily Sales Receipt, therefore the gross deposit is correct and no adjustment is necessary, except for processing fees and any other deductions which can be added to the Z tape checkout. *Consider defining name of payment processor and using tagging or class distinction rather than generic MC, VISA, Discover

Ebay: Marketplace Facilitator

  • Tax Invoice: The Tax invoice shows you the applicable taxes on fees already deducted from your Available, Processing, and On hold funds. In other words this is the report that will give you the amount of fees charged and taxed.

  • Financial Summary: Is a summary of  selling activity and a detailed view of transactions, including information on claims, refunds, payment disputes, payouts and more for the month.

  • Transaction report: (CSV) shows details of your transactions, including transaction date, order number, buyer name, payout date, fees, and other information.

  • 1099-K detailed report: provides a detailed breakdown of all unadjusted gross payment transactions.

In jurisdictions where eBay is required to collect Internet Sales Tax from buyers, order totals sent for processing will reflect the gross order amount inclusive of tax.

Afterpay: Merchant Facilitator  https://help.business.afterpay.com/hc/en-us 

PayPal:Payment Processor  is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers Bank Statement and Transaction History

Shopify: Payment Processor Shopify is a specialized ecommerce platform and not considered a marketplace facilitator  Shopify Reports 

Stripe: Payment Processor primarily offers payment processing software and application programming interfaces for e-commerce websites and mobile applications Stripe Reports and https://support.stripe.com/questions/tax-filing-and-remittance Tax Configuration https://stripe.com/legal/tax

Square (SquareUp):Payment Processor  is a payments system developed by Block, Inc. Square is a payments platform Square Reports

Affirm: Payment Processor https://businesshub.affirm.com/hc/en-us/articles/4418064935188-Settlement-Reports the company operates as a financial lender of installment loans for consumers to use at the point of sale to finance a purchase.

Uber Eats: Marketplace Facilitator https://www.uber.com/us/en/drive/tax-information/

Venmo: Payment Processor https://venmo.com/

AirBnB: Marketplace Facilitator https://www.airbnb.com/host/homes?from_footer=1

Xero: Payment Processor

Apple Pay: Payment Processors are First Data, TSYS, Chase Paymentech, Elavon, Heartland Payment Systems, Vantiv

Zelle: Payment Custodian (Money Transmitter) No 1099K required. Remember: just because Zelle isn't required to send 1099-K forms, that doesn't mean you don’t have to pay taxes on your business income.


It is important to note: The Seller is always obligated to transmit sales tax to the state on behalf of the buyer. Don't let your obligation to the accounting slip through the cracks. Dropshipping, Tax Exempt sales are all factored in the Sellers obligations. Know your position, what has or has not been paid! Prevent sales tax audits, or be prepared with accurate data. Reconcile your income and sales tax! While economic nexus is important, make sure you don’t forget about physical nexus. A physical presence is often thought of as an office location, but hiring employees out-of-state, traveling into another state for business meetings or events, or exhibiting at trade shows can establish a physical presence where you previously didn’t have one. Nexus should be examined on a monthly basis to minimize your sales tax obligation. Suggestion: Obtain a Certified Legal Determination Letter from an Attorney.


*Sales receipts are cash transactions and sales tax on these transactions are due and payable even if the funds are undeposited, regardless of filing method.


The process is similar for all Accounts Receivable (A/R) Transactions. I can assist you in automating this process on a daily, weekly or monthly basis to connect the automated sales tax module in QuickBooks Online and calculate accurate gross income on the profit and loss statement. Sales Tax will be accurately reported on the state tax filing form, and the sales tax liability on the balance sheet will reflect correct data.  Contact Bookkeeping Business Online for assistance


See also: A/R Workflow and Undeposited Funds Managing Accounts Receivable



Customization of this process depends on the operating standards and procedures of the business. Careful planning is required to correctly determine the products and services delivered and their respective income and expense mapping, along with timing of deferral of revenue and prepaid bills or expenses and sales tax obligations.



Item Mapping:

if you have multiple sales channels map each item to the respective sales channel income and expense on the profit and loss.

  • Sort to the sales channel by 'class' setup from Accounts Settings, by line or transaction.

  • Add custom fields to your forms from Gear Icon > Custom Fields to further specify meaningful information on the documents such as Project Mgr, Sales Rep, et...

  • Locations are utilized for NEXUS ship from information (origin of sale)

  • Chart of Accounts setup should follow business type

  • Refunds, Discounts, Shipping, Fees and Sales Tax require special consideration depending on how the sales is processed, and if the item is taxable. You will set up sales tax in the Products and Services items individually. *including sales tax according to laws in your jurisdiction. Note this should follow (destination) ship to. If not select default.

  • Tax Exemptions are set up in the Customer setup. Attach exemption certificates.


GAAP Transactions (Income = COGS or Billable Expense matching)

COGS will not calculate properly on the Income statement without a sales price and purchase cost listed for the items on the QBO products and services list.


If the items are for:

COS Purchases (Non Inventory), These items would be mapped to (income account=Billable Income for Invoices, expense account=COS Billable Purchases Bills/Expenses)

If the items are:

Inventory Items (Inventory) These items would be mapped to (income=Sales for Invoices, expense=COGS Inventory for Bills/Expenses) Must have cost and sales price for each inventory item, update with Spreadsheet Sync. Don't overwrite inventory (the most current bill for the inventory sold is the correct COGS) despite FIFO

If the items are:

COS (Service) Item These items would be mapped to (income account=Billable Service for Invoices, expense account=COS Billable Service Bills/Expenses)

If the items are:

Service Vendor Items (Service) These items would be mapped to (income=Billable labor income, expense=Billable labor expense COS Labor) (use for subcontractors)

If the items are:

Time Item Setup (Service) These items would be mapped to (income=Billable time, expense=Billable time COS Labor) *turn on in Accounts and Settings > Time (use for employees)


If the items are:

Bundle Items (Multi-Inventory) These items would be mapped to (income=Sales for Invoices, expense=COGS for Bills/Expenses add cost and sales price for each inventory item) *Estimated sales prices must match bundle prices for client specific estimated/invoicing. Bundles can be used for estimating common projects (eg: kitchens, bathrooms, et...) If you are tracking inventory movement (eg: manufacturing; use finished price)


If these items are prepaid the following applies:

Prepaid Expenses (any billable product or service):   Prepaids are normally expenses carrying over for 12 months. However, if the business is prepaying expenses on behalf a customer several months in advance set up the Prepaid Other Current Asset account. This process will follow GAAP matching principles

(1)  Create a Bill to the vendor being paid, categorized to the Prepaid Expense Current Asset (increase Prepaid) and pay the Bill. (enter Client/Customer name in the appropriate field and note the Expense Item in the description line, but do NOT mark as billable)

(2) Immediately after payment is made, create an opposing Bill dated to the revenue deferral date or invoice date, with the actual expense or COGS Item, previously prepaid, and mark as billable LESS (-) Prepaid Expense Current Asset category (decrease Prepaid NOT marked billable.)

This net zero transaction does not affect A/P since the Bill has been paid. It reduces the Prepaid Expense Current Asset on the revenue deferral date, or invoice date and marks the expense to be billed creating a GAAP compliant transaction.


If the expenses are billable the following applies:

Billable Expenses (Any billable product or service): If you are using markup and have turned on markup in Accounts and Settings there are two ways to proceed:

(1) items can be marked as Billable on an Estimate, and markup calculated. If Invoicing directly from an estimate, with already marked up items, when the bills arrive in the bank feed, the field for the client is entered on a bill or expense but they are NOT marked billable. When earned revenue is realized directly from the estimate/invoice, the markup is already calculated and the difference on the Income Statement is the Income less the bill fielded for the client = Gross Profit/Net Income.

(2) If the items are marked up directly from the actual expense or bill, and subsequently invoiced, markup will appear as a separate Income line item on the Income Statement. Billable Income and Billable Expense line items should match EOM. (typical of Cost Plus Billing)

Do not duplicate items from the original estimate, that have already been converted to an invoice. Billing from the actual bills and expenses are reserved for Un-Invoiced Charges or Change Orders when working from an Estimate to Invoice.

(****Caution should be taken! Failure to mark an expense transaction billable or duplications can be tedious to reconcile EOM****)


Enter a baseline sales prices and purchase prices (markup/margin) for each item. Spreadsheet sync can help with the management of large products and services lists.

Caution should be taken when overwriting inventory quantities or when updating the purchase price and sales price. The most recent Bill or Invoice for a particular product is the correct COGS calculation in relation to the earned revenue. (GAAP income=expense or COGS matching)



Mapping Marketplace Facilitator and Payment Processors Revenue to the Undeposited Funds Account
Mapping Marketplace Facilitator and Payment Processors Revenue to the Undeposited Funds Account

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