In the invoicing cycle, if you have received a payment but haven't deposited it yet, where is it reflected?

• A. Accounts Receivable
• B. Checking
• C. Cash on Hand
• D. Undeposited Funds

Answer: (D)

When a payment is received but hasn’t been deposited yet, it’s kept in a temporary holding area called Undeposited Funds. This account acts as a cash-in-transit bucket, letting you group payments that are on their way to the bank before you actually make the deposit. As soon as you record the bank deposit, the funds move from Undeposited Funds into your Checking account and the corresponding invoice is marked as paid (reducing Accounts Receivable). The other options don’t fit because Checking is the actual bank account after deposit, Cash on Hand is for physical cash on hand, and Accounts Receivable represents amounts owed, not money held awaiting deposit.