Accounting for last month's rent & security deposit

[Marc Lyman]

I collect last month’s rent and security deposit when a new tenant moves in. How do most of you account for the receipt of this money? Right now I create a separate account in Quick Books for the deposit of each unit and list it as a current liability. Then when the tenant moves out if repairs are needed I transfer the needed $ to the repairs & maintenance account and refund the difference. Should last months rent be handled the same way? Keep it as a current liability then transfer it to rental income the month it is actually being used?
Thanks for your thoughts.

[Ralph S.]

You got it right, if you use the accual accounting method. If you use the cash accounting method, that last months rent would be rent income when you actually receive the prepaid rent.