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.