Security deposits are paid by the tenant to the landlord. It is meant to cover any damages done to the property by the tenant beyond normal wear and tear. As landlords, I am sure this is not news to you. What may be news to you is how to handle these payments in QuickBooks. I am going to share the method I recommend because of its ease of use.
When receiving a security deposit from a tenant, I treat it as a credit to the tenant. I do this because it allows me to see, at any given time, how much their deposit is and it makes it easier to discern how much of it needs to be returned to the tenant after any charges have been accessed.
To use this method, Tenant CANNOT be set up as jobs under a property address. They MUST be set up as a customer. Under these conditions, tenant security deposits are handled with the following steps:
- Receive the payment - There should be no invoice to apply it to.
- Deposit the payment - Tenant Security Deposits SHOULD have their own bank accounts. Some states require this. I think it is just good practice to keep them separate and never commingle the funds.
To return a partial:
- Using the Enter Statement Charges feature - Enter all the charges for cleaning, carpet cleaning, painting, etc. Enter these as positive amounts and it will decrease the amount of the credit sitting on the tenants record. Once all the charges are entered, any remaining amount listed in red as a negative on the tenant's record is due to the tenant.
- Write a check from the Security Deposit account for the amount of the remaining credit on the tenant's record, in the expenses and items section below, choose AR and then choose the name of the customer you are refunding and then click save. This zeroes out the tenant's record and you can then make them inactive.
After the tenant has been closed out and made inactive in your QuickBooks, you can then list that unit as vacant and work to get it rent ready. How easy was that?!
For more information on how this works or to receive some training on processing your tenant security deposits this way, schedule your consultation today! AMH Bookkeeping, LLC……The Landlord's Bookkeeper.