If a client deposits checks from customers incorrectly, what problem might arise at period end?

When a client deposits checks from customers incorrectly, it can lead to the Undeposited Funds account being overstated. The Undeposited Funds account is designed to temporarily hold payments that have been received but not yet deposited into the bank. If checks are not recorded correctly in terms of their deposit status—perhaps they are recorded as deposited before they actually are—this can inflate the balance in the Undeposited Funds account.

At the end of the period, this misstatement can create confusion and complications in financial reporting, as the account balance will not accurately reflect the true amount of funds waiting to be deposited. This overstatement is particularly significant because it affects the overall cash position reported by the business. Properly managing this account is crucial for accurate financial statements and ensuring that cash flow is tracked accurately.