Final answer:
When you increase the Undeposited Funds account, it means that you are receiving payments from customers but have not yet deposited them into your bank account. On the other hand, when you decrease the A/R account, it means that you are collecting payments from customers for the goods or services you have provided.
Step-by-step explanation:
When you increase the Undeposited Funds account, it means that you are receiving payments from customers but have not yet deposited them into your bank account. On the other hand, when you decrease the Accounts Receivable (A/R) account, it means that you are collecting payments from customers for the goods or services you have provided. This typically happens when you receive a payment for an outstanding invoice.
For example, let's say you own a small business and one of your customers sends you a check for $500. At the time of receiving the check, you would record that $500 as Undeposited Funds because you haven't deposited it into your bank account yet. Once you deposit the check into your bank account, you would then decrease the Undeposited Funds account and increase the Accounts Receivable account by $500.
In this scenario, the increase in Undeposited Funds reflects the amount of money you have received but not yet deposited, while the decrease in Accounts Receivable represents the payment you have received from a customer.