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How to account for rental deposit?

trelimontrelimon Member Posts: 15

When renting property, we charge a rental deposit which is held until the tenant leaves which could be 6 months of 3 years later.

I assume this should be handled as a long-term liability since the deposit will (possibly) be held beyond the current tax year.

  1. Please can someone show me (with screenshots ideally please) how to record this
  2. In the event that a portion of the deposit is retained for damage to the property, how is this transaction accounted for (I imagine that a Invoice to the tenant is created for the damage and the retained deposit portion is used for payment) but how is this done

thank you

edited January 21, 2019 in Accounting Technical Support

Comments

  • MikegMikeg Member Posts: 995 ✭✭✭

    I can give you verbal instructions:
    Create a long term Liability called Tenant Deposits Payable in Chart of Accounts.
    If you are importing transactions from your bank into Wave then, look for the deposit that represents a tenant deposit and classify it in the transaction screen to the Tenant Deposits Payable. In essence, you are debiting cash and crediting the liability. When you return a deposit completely then you do the reverse. If importing, look for the check and code to the liability.
    Damages
    If you do not return a deposit because of damages then debit liability to remove the deposit forfeited and credit expense. Most likely repairs and maint. Assuming the business paid for the repair and posted the expenses there. Because the business did not pay for the repair, you are not entitled to a deduction. If the damage was more than the forfeited deposit then the business would recognize an expense or depending on the nature of the repair, may need to capitalize the asset. Hope this helps.
    P.S. I'm a CPA and provide bookkeeping prep and review as well as tax assistance for clients throughout the US.

    edited January 21, 2019
  • Luis1Luis1 Member Posts: 4

    Similar question - I recieved the deposit from the tenant but then I turned around and handed a check to the association. So is the check from the tenant considered "Long Term Liability --> Tenant Deposit Payable" and the check to the association "Long Term Asset - Tenant Accounts Receivable"?

    If so I can create the second one in the Chart of Accounts but when I get it back from the association how do I add it back?

    Thanks in advance.

  • MikegMikeg Member Posts: 995 ✭✭✭

    Yes, to your first part.
    Second part, Let's say your tenant kept the place spiffy and due a full refund of $500 security deposit. You receive a check from the association and then turn around and hand a check to the tenant. Your entries if manual - Debit Cash $500 credit Association Receivable $500 (LT Asset) then Debit Tenant Payable $500 Credit Cash $500 to pay your tenant. If imported then just code the receipts and disbursements to above accounts asset and liability accounts. Hope that helps.
    Mike G, CPA
    www.mgfinancial.net
    Better Service - Better Pricing

  • trelimontrelimon Member Posts: 15

    many thanks for your help @Mikeg - really helped :)

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