Is this the correct way to handle tenants security deposits for move in and move out?

petereberhardt

I have questions on both ends of receiving and returning security deposits. I am attempting to add and return tenant security deposits appropriately. The help window in Quicken is confusing to me (see attached image).

I have read through these posts:
https://community.quicken.com/discussion/7875932/security-deposit-liability-gets-accounted-for-twice
https://community.quicken.com/discussion/7763905/how-where-to-entry-cash-for-rental-property-security-deposit
https://community.quicken.com/discussion/7619998/faq-add-security-deposit-for-rental-tenant

I just want to make sure I am understanding the logic behind Quicken. When a tenant moves in and gives me their security deposit, I owe this to them back and as such it is a liability. Thus, it recorded in the *security deposit liability* account. In my other quicken checking account, the actual $$$ is deposited, thus "balancing out" the liability even though it is in two separate quicken accounts. In real life, if I actually go and spend that deposit, a debited transaction shows up in the checking account, then it becomes a real life liability as you still owe that money back to the tenant when they more out. All correct so far?

Now, to my question:
I have tenant that moved out, only a portion of their security deposit was returned. I have a debit transaction in the rental property checking account that is the returned portion to the tenant.
If I enter in the portion that was returned to the tenant in the tenant list manager, a transaction is recorded appropriately in the *security deposit lability* account. Should I then just create a new transaction in the checking account register for the remainder (that is now considered 'income') that is a transfer from the *security deposit account* even though it sounds like quicken is saying not to do that? And also, that would cause my checking account to unbalance as this is 'income' that wasn't an actual transaction. What am I missing or thinking about incorrectly?

Tom Young

"I just want to make sure I am understanding the logic behind Quicken. When a tenant moves in and gives me their security deposit, I owe this to them back and as such it is a liability. Thus, it recorded in the *security deposit liability* account. In my other quicken checking account, the actual $$$ is deposited, thus "balancing out" the liability even though it is in two separate quicken accounts. In real life, if I actually go and spend that deposit, a debited transaction shows up in the checking account, then it becomes a real life liability as you still owe that money back to the tenant when they more out. All correct so far? "

Well, when you accept the tenant's check then right at that point the liability is created and is a real as it's ever going to be. The fact that at that point you have the money to retire that liability doesn't make the liability any less real. But otherwise, "correct so far."

As to your question, unfortunately I can't speak to the Quicken "mechanics" here since I don't have the rental product, but the accounting is easy enough.

Conceptually, the original deposit is a balanced entry increasing the bank Account and increasing a security deposit liability Account.

The return of some of the security deposit is a the reverse, a decrease in the bank Account and a decrease in the security deposit liability Account.

And the final entry is a reduction, to $0, of the security deposit liability Account and either an increase in some sort of rental income Category or a decrease in some rental property expense that you've previously incurred. This last entry doesn't touch the bank Account.

petereberhardt

> @Tom Young said:
> And the final entry is a reduction, to $0, of the security deposit liability Account and either an increase in some sort of rental income Category or a decrease in some rental property expense that you've previously incurred. This last entry doesn't touch the bank Account.

So this is where I get stuck and I am not sure I understand your answer. I think maybe we might be on different pages as you are not in the rental quicken product.

If your final entry is a reduction, but not to zero, I have a balance in the security deposit account. I am not sure how to properly record the portion that I keep as income without an actual "income deposit" in my checking account. See attached snapshot of the transactions in the quicken created *security deposit account*

I am wondering if I should just go around the tenants all together and create another offline account that will be for deposits, even if in real life I do not have a separate account as it isn't required

Tom Young

Yeah, my lack of knowing how the "rental wizard(s)" work works against me being able to give you step by step directions. The final entry IS to make the liability $0.

The final entry is as simple as it's possible to be and from an accounting standpoint there's no need to incorporate the checking Account in the entry:

Debit (reduce) Security Deposit Account $225.81 To zero out Sam & Giselle security deposit
Credit (increase) Rental Income Category $225.81 To recognize forfeited security deposit

The shot you posted looks like a regular register of some sort - assumed to be an Account in which all tenant's security deposits are posted - and I've always assumed that Quicken uses Tags to keep this detail straight, so if I was just "trying stuff" I'd make an entry to that resister for the 225.81 with a proper Tag and see if that worked.

You certainly could set up separate security deposits Account for each tenant if that makes life easier.

A work around here would be to make a phantom payment out of the checking Account to zero out the security deposit, offset by a phantom deposit to recognize the income "as if" Sam & Giselle handed back that final check. Works from an accounting standpoint, but I'm sure that there has to be someway in Quicken to get there without fictitious entries

NotACPA

WHY did you keep part of the security deposit? The close-out entry in the security deposit should reflect that amount … which MIGHT be income, depending upon why you're keeping i.t

petereberhardt

> @NotACPA said:
> WHY did you keep part of the security deposit? The close-out entry in the security deposit should reflect that amount … which MIGHT be income, depending upon why you're keeping i.t

This particular situation was breaking lease terms. Nothing that was an actual expense or anything like that so yes, I would count it as income.