Quick Question for Quickbook experts!

19 Replies

Hello All

Two tenants. 

1.  Move out Tenant, left the place a mess.  House needed cleaning, so we billed him 75$ for cleaning penalty fee.

2   Move-in Tenant said she would clean the place herself in exchange for the 75$.  Therefore her security deposit was 1750, but she only gave us $1675 (1750 - 75$). 

So, how do I show this in quickbooks?

All of my security deposits and rents are kept in the same business checking account. So I can't just issue a credit, because my business account will not reconcile.  Currently my Bank account is setup like this:

US Bank Bank Account...................................................$4444

Tenant A security Deposit.........................................$2222

Tenant B security Deposit.........................................$1111

As you can see my security deposits are NOT setup in a separate bank account. They are in the same.  Any ideas on how to bill this in QuickBooks??

Thank you!

First of all Bryan do you have it in writing that she said she would clean the place for a $75 Discount on her Security Deposit Move in?  If not, if you ever should go to court, she could tell the court you are a slumlord and left the house filthy.  That she had to clean it up herself.  

Second,  never makes deals with applicants or tenants.  You deduct your expenses out of the Tenants Security Deposit, not a new tenant's security deposit.  

Since you already did this you will send Tenant A her full security deposit of $2222 

and setup Tenant B's Security Deposit as $1111 less the $75 discount for her cleaning the place.  Most likely she never will clean the place.

Put it in writing that you deducted $75 from her move in Fee (Security Deposit) to cover cleaning the home herself, per her wishes.  

Nancy Neville

I've been trying to figure this out for a while on a debit/credit basis, and I'm a chartered accountant, it shouldn't be this hard.  Are you going to be owing tenant B $1675 or $1750 at the end of the lease?

You don't need separate bank accounts although personally, I like to keep one account for operational income and expenses and a separate one for security deposits.  Comingling them can cause a cash crunch when someone moves out and it does obscure your cash flow position unless you're very diligent about accounting.

Please click on the link below to see your State Law Requirements regarding a Security Deposit. 

http://www.landlord.com/security-deposit-law-guide...

Nancy Neville

Nancy, I have checked the link and per Colorado law, I am ok to "co-mingle" the funds. I have checked a similar page in the past, but thank you for another good source of info!

In regards, thought, to my original question. The answers above don't solve my problem.

Tenant A-- did not clean the apartment, so she was charged a 75$ penalty for not cleaning the apartment. That is on top of the fee that I have to pay someone to do the cleaning. This is part of her lease and is perfectly legal practice here in Colorado.  So Tenant A's SD was 1200.  But I only repayed them 1125 (1200-75.)  I can handle writing that up in QuickBooks.

But my question is how do I handle writing up Tenant B.

I have a signed Security Deposit agreement from her that includes an addendum that states she will clean the house for a credit of 75$.  So she gave me 1675$. But when she moves out she will expect $1750.

Since my security deposit is co-mingled with my rents in one account.  I can't just add journal entries or credits, because I need the account to reconcile.  So, how do I best handle this? 

If you owe the tenant 1750 at the end of the lease, then you need to book the liability for tenant deposit for 1750.

The journal entry should look like this:

Debit Cash 1675

Debit Cleaning Credit 75

Credit  Security Deposit 1750

Does this make sense?

Hopefully this will help. As an Accountant, I know the pain in learning  - it takes a long time to learn a business, accounting and QuickBooks software, learn the definition and  apply steps for each segmentation of the industry.  Our system has been copied over and over by other consultants without permission - when they do that they only offer part of the solution. Other consultants have used after they purchased our product. 

Remember all my answers are only to the specific questions you are asking. The setup of your QuickBooks file is very important. Not sure how you are using - but presuming many things. In Short READER BEWARE - if you ask for an answer - let that person be the goto person for you. Internet is a necessary evil.

Here it goes:

OLD Tenant:

1. Create an invoice for the old tenant for 75.00

2. Create a credit for the full amount of security deposit 

-------- apply 75.00 to the open invoice and 

-------- give a refund for the balance.

NEW Tenant:

1. Create a invoice for the full amount of rent

2. Create a credit memo for $75.00 

-------- apply 75.00 to the open invoice

You are running your business, you already know the rules and regulations put in place by rental's town, county and state.  Let us be an QuickBooks Addict.

Gita Faust

No company avatar mediumGita Faust, Fast Trac Consulting | [email protected] | 866‑645‑3356 | http://www.RealEstateAccounting.com

Sorry Bryan:  Focused on Security Deposit Laws:

When you enter a receipt in QuickBooks for her Security Deposit of $1750.00, on the second line of the Security Deposit Receipt, list Cleaning fees (you will have to set this up in the Items List as an Item and link it to Security Deposit Other Current Liability Account, then make it a minus sign showing  $75 to subtract it from the actual amount of the Security Deposit.  Now this new figure will show up as her Security Deposit both in the Chart of Accounts and Define Fields that I showed you in the book.

I have the Cleaning Fee setup as an Other Current Liability Account because you are taking that money from the tenants Security Deposit, and not using it as an expense account.  

In order to balance we had to set up the deduction from the tenants actual security deposit.  Now the money you deposit into the bank is $1675.00, (and will balance with your bank statement) and the paper trail is now showing in her Security Deposit Account in the Chart of Accounts is also $1675.00, and it will show up in the Define Fields at $1675.00 as well.

Nancy Neville

Originally posted by @Jennifer Pereira :

You don't need separate bank accounts although personally, I like to keep one account for operational income and expenses and a separate one for security deposits.  Comingling them can cause a cash crunch when someone moves out and it does obscure your cash flow position unless you're very diligent about accounting.

Check the laws for your jurisdiction. Washington State landlord-tenant law requires deposits to be kept in a trust account with a financial institution (bank, credit union, savings & loan, etc.) or licensed escrow agency in the state of Washington. This keeps the tenant security deposits separate from operating and capital funds. We set up three accounts at our credit union for each business entity (we have two LLCs). Checking account is for operational funds, Savings account is for capital funds and reserve funds, Money Management account is for tenant security deposits. Note, if you are an out of state investor with rental property in Washington State, be sure you keep your tenant security deposits in a qualified financial institution within Washington State. The landlord is allowed to keep all interest here.

When a tenant moves in we deposit their security deposit into the money management account. When the tenant moves out, we transfer the full security deposit into our checking account and write a refund check to the tenant out of the checking account. Any amount of the security deposit we are legally entitled to retain thus remains in the checking account and can be used to pay for unpaid rent, damages, cleaning, etc.

Washington law also requires the landlord to give the tenant a written receipt that shows the amount of the security deposit and the name & address of the financial institution where it is being held. If we accept a security deposit, the lease or rental agreement must be in writing and include the terms and conditions under which the deposit, or portion of deposit, may be withheld by the landlord at the termination of tenancy for failure of the tenant to perform their duties. 

So, in the situation the OP presents, we would not give a credit off of the security deposit for the cleaning done by the incoming tenant. Instead, we would deliver the unit clean at the start of tenancy and document the condition of the unit upon start of tenancy. If the unit was not clean upon start of tenancy, we would document that as well, along with any agreement we made with the in-coming tenant to clean it. After the in-coming tenant completed their cleaning, we would write a check to the tenant for the value of the work they did to clean the unit, then we would update the unit condition report to reflect the current condition of the unit and make it clear the unit would need to be returned to that condition upon move out. Everything in writing.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

You guys!  What does your lease say?  

You should NEVER, NEVER give credit on the the security deposits for NEW tenants.

Think about it a little bit - if and when the new tenants moves out - you have to account for the security deposit per your lease agreement. 

ONLY when a tenant moves out you deduct the unpaid balances.

You are making me very nervous! Please pay someone to learn the rental laws, rules, regulations, and speak to a experienced landlord and/or a property management company.

No company avatar mediumGita Faust, Fast Trac Consulting | [email protected] | 866‑645‑3356 | http://www.RealEstateAccounting.com

Take the full security deposit as normal.  Then pay her $75.00 for cleaning and mark it down as general labor. 

Make it 2 totally separate transaction.  You do not need to 1099 labor under $600. 

Originally posted by @Bryan Hylenski :

Nancy, I have checked the link and per Colorado law, I am ok to "co-mingle" the funds. I have checked a similar page in the past, but thank you for another good source of info!

In regards, thought, to my original question. The answers above don't solve my problem.

Tenant A-- did not clean the apartment, so she was charged a 75$ penalty for not cleaning the apartment. That is on top of the fee that I have to pay someone to do the cleaning. This is part of her lease and is perfectly legal practice here in Colorado.  So Tenant A's SD was 1200.  But I only repayed them 1125 (1200-75.)  I can handle writing that up in QuickBooks.

But my question is how do I handle writing up Tenant B.

I have a signed Security Deposit agreement from her that includes an addendum that states she will clean the house for a credit of 75$.  So she gave me 1675$. But when she moves out she will expect $1750.

Since my security deposit is co-mingled with my rents in one account.  I can't just add journal entries or credits, because I need the account to reconcile.  So, how do I best handle this? 

Even though the law in your state may allow you to "co-mingle" funds, doesn't mean you should. Aim for property management best practices. Certain funds are best kept separate, especially tenant security deposits.

Since you have already started the co-mingling, but have not yet finalized your documentation and bookkeeping, I would advise you to meet with your new tenant, explain the dilemma and start over. You and the tenant can agree to re-do the security deposit agreement to reflect the full value of the security deposit. Pay her $75 for the cleaning and have her pay it back to you towards her security deposit, you could even do this in cash.  It would be much easier than what you are trying to do now. It would also be much cleaner. Be sure to update the property condition report after she has completed the cleaning and have her sign off on it.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

I absolutely agree Gita!  And is why I counseled Bryan to NOT DO what he did.  But since he did do it, he wanted to know how to apply it to QuickBooks, thus my answer to him and nothing more.   

Nancy Neville

Originally posted by @Kelly R. :

Take the full security deposit as normal.  Then pay her $75.00 for cleaning and mark it down as general labor. 

Make it 2 totally separate transaction.  You do not need to 1099 labor under $600. 

Yep. That's how it should have been done in the beginning. Now the OP needs to undo what he has done and redo it to make it right, since he and the tenant have already signed a security deposit agreement that shows something different. Trying to fix it on the books is not the best route. He should go back to the tenant, redo it and make it a clean transaction.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

You guys are all fantastic!!!! I have learned more in the last 20 minutes then this entire week of trying to figure this out on my own!  Nancy is not only one of the most knowledgeable people I have ever met in terms of quickbooks, but also one of the most accessible.  As for the others, thank you!  I am taking everyone's advice! 

Just to explain, my situation is setup this way because I live and manage my properties from South Korea. I moved here a few years back, but still buy real estate and manage it from here. but I could only get a checking account from overseas, via the internet. I can get an EIN number, licenses, setup LLC's, get insuracnce, find tenants...everything! But no one would give me a business account without coming into sign some papers. So, I went the single checking account avenue and it has been a mistake, I have need to fix for a while!

But, next month I will be in the US, so we will fix this with the tenant and do as you have all recommended and stop comingling funds, fix the security deposit, and just pay her as general labor.  We will setup a new business account for all of our properties and do this right.  Thank you everyone! You guys make this sometimes lonely world of being a landlord...fun!! One day I plan to drive to Michigan and give Nancy a big hug!! 
Cheers! 

Hey Bryan I will hold you too that!  Give you a tour of the Big "D"

Nancy

@Bryan Hylenski

It's great that you are in Korea. We have a monthly Real Estate Investors meetup in Seoul.

I live in Cheonan, not sure where  you are located. But we have a growing group of Military and ExPats.

http://www.meetup.com/Seoul-REI-Meetup/

I have a couple of mates in Cheonan.  Seoul is a bit far for me, I live in Daegu and I'm not military, so I can't get on the base, unless someone gets me on.  I messaged you offline. Thanks for the invite.

@Bryan Hylenski

Hi Bryan! I help organize the meetup with John out here in Seoul. Too bad you're so far out^^

If you're ever visiting Seoul and want to meetup with some of the members, send me a message and maybe I can help arrange something. 

Take it easy!