When customer deposits are processed, what is debited?

When customer deposits are processed, the entry that is recorded as a debit is to Undeposited Funds. This reflects the fact that the company is receiving cash or a payment from the customer, but that the cash has not been deposited into the bank account yet. By utilizing Undeposited Funds, the accounting system can accurately track incoming payments until they are formally deposited in the bank.

In this context, Undeposited Funds serves as a temporary holding account that ensures all customer payments are recorded properly before they are reconciled with bank statements. Additionally, this method provides a clear trail of cash inflow, which aids in financial accountability and clarity.

The other options involve different financial implications: Customer Deposit typically represents a liability until the service or product is delivered; Inventory Asset relates to goods that are held for sale, while Sales Income represents revenue earned from sales. These accounts are processed differently and would not be debited in the case of customer deposits before they are officially deposited into the bank.