and now we will learn how to record and manage security deposits from tenants
security deposits are an amount paid at the beginning of the stay or if there's a lease
it's an amount paid at the beginning of the lease usually the amount of one month's rent
is the money amount of the security deposit but of course it could be different from one situation to
another the security deposit is not money given to the landlord for time that the tenant stayed
in the unit or the dwelling it's usually meant to cover costs for potential damage to the property
by the tenant during the stay in practical terms there's usually no need to separate them from the
other funds that you received from the tenon it's okay to include them in your unearned rent why
because when a tenant moves out the amount owed to the tenant or the amount owed to you from the
tenant is always going to be the same amount whatever money they gave you - whatever time
they stayed - whatever damages and it never really matters at the end how much of the money they gave
you was rent and how much was security deposit this is going to be the calculation to determine
who gets the refund and how much so the amount that was originally designated as the security
deposit is irrelevant okay you could always look at the tenant balance detail and know how much
of the balance is the security deposit now let me give you a quick example if we go here the tenant
balance detail well you know very well that if Donna pay you in advance and her balance is four
thousand eight hundred and you can see Donna's rent is twelve hundred a month then you know of
the four thousand eight hundred that Donna paid you in advance that she hasn't stayed yet 1200
is the security deposit and you just subtract so what's that 3,600 she paid in advance and
the other 1200 is security deposit it's not hard to figure out obviously if someone like Dave was
someone like Dave of his rent is a thousand a month that means that a thousand is the deposit
and you owe him five months friend of Steyne okay now in a case like Johnny where you know
his balance goes Leo that his balance is exactly the security deposit over here but this other
Nancy not the Nancy we're doing if it's a positive balance you know what that means if a tendon has
a positive number as a balance and this in this report you know supposed to be the tenants balance
detail it means that not only did they stay past the rent that they paid for they also stayed past
their security deposit if the balance is positive so it's just knowing about how to interpret the
report and understanding the idea of the security deposit and you don't really have to separate them
however why would we need to separate the deposit if we're doing accounting and bookkeeping for your
properties well some management companies have a detail reporting to have detailed reporting
requirements that requires that they separate the amount given and designate it as a deposit
depending on whom they're reporting to some property owners are required to even physically
keep separate the cash security from the tenant and the money from the monthly rent that there's
a physically a separate fund and they might be required to do that there might be some other
legal issues regarding what should be paid as rent and what should be paid a security deposit
so here are the steps to actually setting up the security deposits or setting up your QuickBooks
to be able to record and manage security deposits as separate amounts received from tenants okay so
first we create a bank type of account called security deposit fund and this account will
represent the money that is physically aside for the security deposit well that's very simple we
go to the chart of accounts in the bottom left account new just like we learned in the previous
videos and we make a bank type of account and then what is the suggested name security deposit
fund so we go here and we type curity oops I'll make it a capital so that we can distinguish it
from the other accounts secure it T Dib ha is it fun now click Save and new and again that will
represent the money we physically put aside now you don't have to do this but you could create
another accounts receivable type of account called unearned security deposits you only need this one
if you don't want to keep the deposits with the rest of the unearned payments from tenants so
you want your unearned rental income to reflect only unearned rental income and these would be
unearned security deposits so if you don't like if you don't like UM lumping them in with the
rest of the unearned money then you can separate it out now you only use these two accounts for
the very first transaction you ever have with the tenant and the very last transaction you
have with the tenant and I'm going to demonstrate that step-by-step and usually the balance of both
of these accounts are the same so let's go ahead and create that it's an accounts receivable type
account of account and what did we say it's called unearned security deposits so let's call it honor
security deposits okay save and close good now in our first example let's imagine that on August 1
Nancy moves in to apartment 6f just like she did in the previous video her rent is a thousand a
month as we remember but let's imagine on August 1 she paid us three thousand and that three thousand
is for the security deposit and the first month's rent and the last month's rent and she gave us
check number one sixty one you must enter the deposit in a separate transaction from the rest
of the rent and that'll help the numbers come out the way you would like so right now we don't have
those two accounts that we just created on our trial balance but if we do this if we open the
receive payment window and we make sure it's August 1 4 2017 what we have to do here is
make sure that the account receivable account says unearned security deposits and that the
bank type of account says security deposit fund these are the two accounts you have to select for
the separate transaction of recording only the security deposit so even though we got checked
even though the amount of check one sixty one is three thousand that we received from Nancy
the amount of this check is three thousand but we're only recording it as one thousand for the
first one okay so we're going to record this twice we're going to put this date and this check number
twice the first one will go into this account and that account okay save and close click ok
don't worry now the trial balance shows only security deposit fund having a thousand an
owner and security deposit a thousand but when I finished we're not finished with the very same
action regarding Nancy okay because on the same date with the same check number with the same
check number very important this second amount for two thousand is actual rent so that would
go into the normal bank account and physically it'll go into the normal bank account and it
goes into the regular unearned rental income not the security deposit for two thousand save
and close and click okay so now when we do that we can see that these that the security deposit
funds should only have a thousand and then the unearned rent went up by the other two thousand
and the security and the unearned security the pot on the ass and because the second one that
I put in was regular rent that goes into unearned rent and regular bank account so now it will be
very clear on the tenants balance detail that we received three thousand on August 1 and by
August one we haven't done anything for Nancy yet she hasn't stayed for any period of time so
we did not earn her rent as of August 1 and she did not damage property so we don't need to take
her security deposit so at the minute Nancy gives us three thousand we over that three thousand two
thousand of which is owed to her for future MA you know that for future month stay so that if
she moves out right now August two we have to give this back to her for whatever reason and
then of course the security deposit we also have to give back to her if she doesn't damage any
property before moving out so technically she hasn't damaged any property and hasn't stayed
so technically we over her three thousand until these things happen so that's why as of August
one her balance is negative three thousand but it's clear that two thousand of check number
one sixty one is for regular rent and the other thousand which was part of this very check 161 is
unearned security deposit and I think it will be clear after the second example let's imagine that
Helen moves into apartment seven L her rent is 500 a month and she gave us 1,500 security first month
and last month with check number 262 you would do it the exact same way separate the first 500
s security in the first transaction so we go to payment for ggest 1 and we choose Helen I already
put her on the list off-camera to save time now Helen gave us five hundred and security to Patna
watch this the first one we enter is only for the security deposit the bank type of account is the
security deposit fund because that's where the physical money is going and the owner the account
receivable type of account is unearned security deposit so your receivable account and your bank
account both say security deposit for only the amount of the security deposit even though it's
part of a check where the whole amount of the check is more 262 so even though check 262 is a
1500 we're putting in 500 first on the same date with the two security deposit accounts save and
new click OK then do the exact same thing for the exact same tenant on the exact same date with the
exact same check number except you're gonna put the money amount of only the rent up here and
you're going to make the bank account the normal account that the money goes into and you'll make
the receivable account the regular unearned rent because a thousand is unearned rent on the day
that she was in now after we click Save and close and click OK now we can open up the trial balance
and we can see unearned rental well unearned security deposits is 1500 unearned rent just
12 thousand four hundred so if we kick everybody out tomorrow and nobody broke anything we have
to pay back all of these two and of course the security deposit fund should physically physically
be holding 1,500 if we are required to keep it separate from the rest of the funds and that's how
you do it one final note if you want to learn how to apply deposits to damages and then refund the
remaining deposit both require that you select the accounts that were made in this video so on the
day they move out you will follow the procedures of the two videos that will follow this one one of
them will show you how to how to apply deposit for damages and the other will show you how to write a
refund check for the remaining deposit but what you must remember is when you apply the damages
and when you write the refund check you have to select both of the deposit related accounts