Accounting for Security Deposits

Nancy - Question regarding the accounting for Sec. Deposits:I currently have the deposits recorded as a liability. When the tenant moves out, and has a balance owed, I create a general journal entry to record the use of the security deposit and the offset of the journal entry is to the A/R for that particular tenant. Question is: why does QB show the adjustment in the A/R of the balance sheet at year end as a negative, when I am using the Security Deposit to pafor the outstanding invoice? I am applying the deposit wrong?

Answer

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I use to do Security Deposits your way. However, thanks to a QuickBooks Guru named Amy on this forum , I now handle Security Deposits according to the Article she posted online called "Handling refundable deposits" written by QuickBooks. And it all makes sense and it works!

When you handle Deposits you NEVER do it on an Invoice...thus your problem. It will show up under Accounts Receivable. According to the article Amy posted and according to my experience using it this way...This is the best procedure.

RECEIVING A SECURITY DEPOSIT:

****Create a QuickBooks SUB(BANK) Account called CUSTOMER DEPOSITS.You will deposit all Security Deposits there.

*****Create another QuickBooks account called (Deposit Liabilities) an Other Current Liability Account. This will make sure this money is not recognized as INCOME but an account that will be refunded to someone at a later date.

When you receive the money from your Tenant or Customer.....

1. Choose MAKE DEPOSITS from the Banking Menu

2. From the Bank Drop Down list on the Deposit Slip choose the new SUB bank you created called CUTOMER DEPOSITS.(You want to make a sub account of your bank so that you can keep track of the exact amounts of money you receive as deposits from each tenant or customer) This way also gives you the precise financial reports you need for determining who gave what and who you owe when the time comes)

3. Next type in the name of your Tenant or Customer in the Received From Column.

4. Next choose from the Account drop down list DEPOSIT LIABILITY ACCOUNT (This will make sure that this money IS NOT treated as INCOME) (You can rename these accounts whatever name you want to name them that will help you distinquish a Security Deposit account from all other accounts)

5. Next in the memo field type in Security Deposit

6. then Cash or check as the method etc.

7. Class (The property)

8. The amount.

TO PAY THE CUSTOMER/TENANT BACK

1. Choose Write a check from the banking menu and wirte the check to the Customer/Tenant from the Customer Deposit SUB Bank you created and NOT from YOUR OWN BANK ACCOUNT. You want to make sure the money is being withdrawn from the Tenant or Customers own deposit account even though that account is part of your own bank account or holding account if you choose to open an individual Customer Deposit Account.

2. Assign the check to your Deposit Liaiblity Account.

3. Write in the description memo area of check of what this is for so that it will appear on your Reports.

This is so much easier and better than the Acceptable General Journal Entries and accomplishes the same thing. Not showing Security Deposits as INCOME. (Who needs to be tossed into a higher income bracket...right!)

If you use the General Journal way THE ACCOUNTANTS WAY, you will have to hand write a deposit slip and hand write a check in order to not have the deposits and withdrawals show up twice in QuickBooks,

If you typed in a Journal Entry for the above and then Wrote a check or made a deposit the normal way in addition to the General Journal Entry, you will have double deposits or double withdrawals. Rem

Remember the General Journal entries automatically enters the deposits and withdraws for you automatically..... It doesn't physically give you the opportunity to deposit or pay back monies received or owed. Journal entries are strictly adjustments on paper.
So if you did it the General Journal way you would, as I said, have to manually write a check or manually make a deposit as you did in the old days! :)

Thank you AMY for this bit of info...It is the BEST ! She is truly a guru!

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