How to financially account for a lost security deposit

[Michael Slockers]

Hello all:

When a security deposit is received on a new long-term rental lease, I categorize that in my accounting system as "deposit", separate from rent. It isn't income, doesn't show as a gain, etc. 

When that same tenant moves out one year later and forfeits that security deposit, how should I do the accounting? It is now a gain to my company, offset by some loss to contractors for cleaning, carpet replace, whatever. 

[Natalie Kolodij]

Originally posted by @Michael Slockers:

Hello all:

When a security deposit is received on a new long-term rental lease, I categorize that in my accounting system as "deposit", separate from rent. It isn't income, doesn't show as a gain, etc. 

When that same tenant moves out one year later and forfeits that security deposit, how should I do the accounting? It is now a gain to my company, offset by some loss to contractors for cleaning, carpet replace, whatever. 

 When you receive the deposit it's a liability- it's something you potentially need to pay someone back

When they move out you then reduce it by expenses for any move out costs incurred (amounts you're keeping) and then return the balance to the tenant. 

So if you have a $1000 deposit 

You incur $300 in expenses 

You reduce the deposit to $700 and then writing a check to the tenant will $0 that remaining $700