Handling security deposits in QuickBooks

Handling security deposits in QuickBooks

Handling security deposits in QuickBooks can be a bit of a tricky transaction. In the video and corresponding post below, I outlined the steps. The key when using QuickBooks in making this transaction work is in the way you use the items. Proper setup of the items is paramount.

Handling a security deposits in QuickBooks:  Create the liability account

Let’s start with the security deposit item itself. Why is the security deposit and other current liability account? Well it’s money that you collect from a tenant that you hold in kind until they move out. You may give that money back in full, partially or not at all. How you handle that transaction in the end is so important. There are a lot of laws and rules around handling this type of receipt. It is much like a trust account for an attorney.   You are holding these funds for the tenant. They must be kept separate from other funds. Enter the security deposit liability account.

Handling a security deposits in QuickBooks: The tenant moves in....

You need to set up your rental income account. That is pretty straightforward. Next you need to use them in a sales transaction. Your choices are invoice or sales receipt. You need to use those two types of transactions, so you can use the item that you just created. In the video, I used a sales receipt because the tenant paid me on the spot for the rent. I added the rental income in the security deposit items to the sales receipt.

Handling a security deposits in QuickBooks:  Then tenant moves out....

Now fast forward to when the tenant is moving out. The tenant moves out she leave the apartment perfectly clean. No damages. All I have to do is go to the + and create a check. In that check I use that same liability account. Refund her the full amount. Now my liability account is at zero.

But what if my tenant owes me rent. She moves out and doesn’t pay the rent. I use the security deposit to pay the rent. In this case, I would still use write check as well as create a credit memo to apply the security deposit to the unpaid balance of the rent. In the credit memo I would use that security deposit item, so I can apply that funding out of the security deposit liability account.

The last scenario is if there is damages. It’s really the same thing. You have to create an item that points to the expense account for your damages. In my video I had one in place and it was pointing to repairs and maintenance. When the bill comes in for the damages, I enter it to repair the maintenance. When the tenant moves out, I apply the balance of the security deposit to repairs and maintenance in a zero check.   This will lower my expense account, thus lowering my expense. I am using the security deposit to lower the expenses incurred by my tenant.

Last piece of advice: Stay compliant...

There are plenty of rules and laws in each state to protect both the landlord and the tenant.   It is your job as the landlord to know them inside and out.

I hope this helps you to understand this transaction and helps you to be able to enter it properly in QuickBooks and stay compliant.

If you have any questions or would like to see a future video on another topic, please reach out to me on Facebook.

Lynda Artesani

Being in the accounting field for over 20 years, I have watched this industry evolve. It is an exciting time to be an accountant with all the changes in technology. I am honored to be on the Intuit Advisory Council 2018-2019 and to be a member of the Intuit Trainer Writer Network. I am also an Advanced Certified ProAdvisor. In addition, I am the co-founder of QB Community Live! with Matthew Fulton. It is a Facebook group where help other accountant and small business owners. My firm specializes in working with Law Firms and with Real Estate owners and Start ups.