Bookkeeping Security Deposit

[Lilla Horvath]

Is a security deposit regarded as income for bookkeeping purposes? I'm using Excel spreadsheets for now to do my bookkeeping. How do I account for the security deposit without inflating the cashflow?

How do I account for the return of a security deposit? What would the account be for this transaction? Is it an expense? If so, what kind?

Thank you!

[Dawn Anastasi]

Originally posted by @Linda Weygant:

Originally posted by @Derek Carroll:

strictly in an accounting sense you'd debit a current asset/ cash account and credit either a short or long term liability account depending on the length of your leases. Set up an account for security deposits payable. 

 Agreed - a security deposit is technically a liability because it's something you will owe in the future.  So no, it's definitely NOT income.

From a bookkeeping standpoint, your transaction is to Debit your checking account and Credit your Security Deposits Payable account.

Later on, when it's time to give it back, you would Debit Security Deposits Payable and Credit the checking account.  If you're holding some or all of it back, you would credit the revenue account (which increases revenue).

If you keep part of the security deposit, it's because you had expenses to fix the place up.  So you're in essence just crediting the "repairs" account (in the expense section).

Example:

1. Take security deposit of $1,000

Debit Checking $1,000 (asset account)

Credit Security Deposits payable $1,000 (short-term liability account)

2. Tenant moves out, you find $200 worth of repairs you need to make so you have the contractor fix things and pay them $200.

Credit Checking $200

Debit Repairs Expense $200

3. Return balance of security deposit to tenant for $800

Credit Checking $800

Debit Security Deposits Payable $1,000 (as you need to zero out the account)

Credit Repairs Expense $200

Withholding all or part of the security deposit shouldn't be treated as income otherwise you're overstating income and you'll be paying extra taxes on that when you don't need to.  The tenant is just reimbursing you for the expenses.