Mind boggled accounting entry question: Partial Card refund

maineuropa

Trying to issue a partial (50%) refund of a booking fee/security deposit on a credit card. So half will actually be refunded; the other half will reduce the deposit liability by $500(50%). Just cannot figure out how to reduce the liability; Quicken wants me to make the change in my business checking account(not the liability account) and thus I would be altering the actual refund cash amount. Should I just enter a new transaction reducing the deposit account by the $500?

Tom Young

Understanding how the "originating" transaction or transactions was/were accounted for would help us understand how to help you unwind it. 

Assuming the original amount collected was $1,000 and assuming that the current balance in the deposit liability Account is $500 and that the refund will zero out the Account, it sounds to me like you took the difference into income, i.e., the "nonrefundable" portion of the booking fee.  If that's the case then simply booking the refund of $500 directly to the deposit liability Account will be all that's needed.  But it's not clear if that's the situation, or not.

ADDED: As you've now clarified the situation, the $500 refund will reduce the liability to $500.  Then, in the deposit liability Account, make an entry zeroing out the Account with the offset to whatever Category you use to record booking fee income.

Frankx

Hi again @maineuropa,

Okay, I didn't get that "second half" from your first post, but I think it is pretty straight forward.  An additional "third entry" is required and that entry would be as follows:

Liability for Tenants' Deposits  -  debit                  500.00
Rental Income   -  credit                                                       500.00

or - if you want to combine it with the above, the replacement entry for #2 above would be:

Liability for Tenants' Deposits  -  debit                  1.000.00
Bank/Cash Account   -  credit                                                 500.00
Rental [or Other] Income   -  credit                                         500.00

To explain - when you, as landlord, take all or part of a tenant's deposit, that is additional income to you.  Keep in mind that the "deposit liability" mentioned above is something that you "owe" someone else - it is your liability not the tenant's. So its not actually the same as "loan forgiveness".  You are being compensated for some issue that is causing you to not refund a deposit, typically tis happens when a tenant hs caused damage to your property or have not lived up to the lease terms.  That's additional income to you.

Hope this helps.

Frankx

Frankx

Hi @maineuropa,

So, while you didn't indicate it, I assume that your the landlord and are trying to refund a portion (50%) of a tenant's deposit.  Since you mention a "credit card", presumably you have previously "charged" the tenant's credit card with the full amount ($1,000.00).

The original entry, then was as follows:

Bank/Cash Account   -  debit                            1,000.00
Liability for Tenants' Deposits  -  credit                                1,000.00

The new entry would therefore be:

Liability for Tenants' Deposits  -  debit                  500.00
Bank/Cash Account   -  credit                                                 500.00

If Quicken is forcing you to make the payment from a different "Bank/Cash Account" from the one you originally deposited the security deposit into, you may need to make an entry between the two Bank/Cash accounts, to get them both into balance.

Let me know if you have any followup questions.

Frankx

maineuropa

Sorry but its a bit more complicated than that. The first step you describe I did when the deposit was made. The part I cannot mentally account for is the refund of half the cash amount of the deposit, combined with a full reduction of the liability($1000). There is no cash involved in the second half of the reduction; it is more of a loan forgiveness type transaction. We are refunding only half of the deposit (credit card refund) but eliminating the full $1000 deposit liability.

Tom Young

Understanding how the "originating" transaction or transactions was/were accounted for would help us understand how to help you unwind it. 

Assuming the original amount collected was $1,000 and assuming that the current balance in the deposit liability Account is $500 and that the refund will zero out the Account, it sounds to me like you took the difference into income, i.e., the "nonrefundable" portion of the booking fee.  If that's the case then simply booking the refund of $500 directly to the deposit liability Account will be all that's needed.  But it's not clear if that's the situation, or not.

ADDED: As you've now clarified the situation, the $500 refund will reduce the liability to $500.  Then, in the deposit liability Account, make an entry zeroing out the Account with the offset to whatever Category you use to record booking fee income.

Frankx

Hi again @maineuropa,

Okay, I didn't get that "second half" from your first post, but I think it is pretty straight forward.  An additional "third entry" is required and that entry would be as follows:

Liability for Tenants' Deposits  -  debit                  500.00
Rental Income   -  credit                                                       500.00

or - if you want to combine it with the above, the replacement entry for #2 above would be:

Liability for Tenants' Deposits  -  debit                  1.000.00
Bank/Cash Account   -  credit                                                 500.00
Rental [or Other] Income   -  credit                                         500.00

To explain - when you, as landlord, take all or part of a tenant's deposit, that is additional income to you.  Keep in mind that the "deposit liability" mentioned above is something that you "owe" someone else - it is your liability not the tenant's. So its not actually the same as "loan forgiveness".  You are being compensated for some issue that is causing you to not refund a deposit, typically tis happens when a tenant hs caused damage to your property or have not lived up to the lease terms.  That's additional income to you.

Hope this helps.

Frankx

maineuropa

Treating the forgiven part as income was the missing step for me. Thanks for the help! All forgiven debt is income anyway..just was happy to have a senior moment I guess!