How to Record a Security Deposit in QuickBooks Desktop or Online?

Recording a Security Deposit in QuickBooks helps businesses track liability and handle tenant or customer transactions more precisely. 

Security deposits refer to money given to a lender, landlord, or seller of a house as a guarantee or security against potential damage, non-compliance with the terms of the lease, non-payment, or loan default. 

Security deposits are mostly present in rental agreements for real estate and equipment, serving to safeguard the receiving party from potential losses.

What is a security deposit in QuickBooks?

A security deposit in QuickBooks is treated as an asset for a tenant. To record it, simply create an “Other Asset” account named “Security Deposits” and assign it to the payment. This helps you track the deposit as part of your assets in QuickBooks.

Why should you keep the Security Deposits transaction separate from personal transactions? 

• Tax and Legal Requirements: By keeping security deposits in separate accounts, we prevent money from being mixed, which is crucial for ensuring tax compliance. This focus on meeting legal obligations can provide customers with a sense of security.
• Ease of Tracking: By keeping security deposits in a separate account makes it easier to track them, including when and from whom they were received.
• Tracking Interest to Capital: By keeping security deposits in a different account can help track interest earnings.
• Channeling and bifurcating funds: By keeping security deposits in a different account avoids unintentionally using them for unrelated costs.
• Better Financial Management: By keeping security deposits in different accounts, businesses can make better judgments and have a better understanding of their financial situation by classifying security deposits as customer deposits. 

Are security deposits considered income or liabilities?

The security deposits are considered as a “liability” and not as an “income” from the business point of view. They are recorded under the “liability side” of the balance sheet.

You generally don’t include security deposits on your income side if you are required to return them to the tenant at the end of your lease. You might have to keep a certain part of the security deposit for a part of it in case of:

To the extent that the security deposit reimburses these expenses, do not consider that amount in income if your practice is not to deduct the cost of repairs as expenses.

How to record a Security deposit in QuickBooks Desktop?

Part 1: Create the liability account

Step 1: Navigate to the Chart of accounts

1. Click on the Setting option on the gear icon.
2. Now, choose the Chart of Accounts option from the drop-down menu.

Step 2: Create the account

1. Click on the + New.
2. Now, choose the Account Type from the drop-down menu from the Account window.
3. Select the account type.
4. Choose the account receivable as detail type under the Detail type drop-down menu.
5. Enter the account name.
6. Add the description.

Step 3: Save the transaction

1. Click on Save once you have mentioned all the details.

Part 2: Record the Security Deposit as a Check

Step 1: Navigate to Write Checks

1. Click on the Banking menu on the screen.
2. Now, choose the Write Checks option.

Step 2: Select the Bank account

1. Click on Bank account.[ The bank account from which the money will be taken. ]
2. Put the Ending balance. [ The balance of the given bank account as of the date of writing the checks.]

Step 3: Select the Payee’s details

1. Now, choose Pay to the Order. [ It will have the name of the payee or whoever the check is issued for.]
2. Mention the number assigned to the check number in the No. field.
3. Now, check the amount in number. [The “Pay to the order” field will automatically display the dollar amount in words.]
4. The payee address will automatically pop up in the Address field.
5. The Memo field can be left blank. [ Otherwise, it is used as an unofficial note for additional details like the account information, the period, and the payment.]

Step 4: Selecting payment option

1. You get the option to Pay Late or Pay Online. [ Put a checkmark on the option which suits you best.]
2. In the Expenses or Item tab, put the shipping charges, liability (in cases of payments for liabilities/loans), and other expenses not associated with any item in QuickBooks.

Step 5: Save the transaction

1. Click on the drop-down menu from the Item tab to select the appropriate item.
2. Click on Save once you have mentioned all the details.

How to Record a Security Deposit in QuickBooks Online?

Part 1: Create the liability account

Step 1: Navigate to the Chart of accounts

1. Click on the Setting option on the gear icon.
2. Now, choose the Chart of Accounts option from the drop-down menu.

Step 2: Create the account

1. Click on the + New.
2. Now, choose the Account Type from the drop-down menu from the Account window.
3. Select the account type.
4. Choose the account receivable as detail type under the Detail type drop-down menu.
5. Enter the account name.
6. Add the description.

Step 3: Save the transaction

1. Click on Save once you have mentioned all the details.

Part 2: Record the Security Deposit

Step 1: Navigate to the Security deposit option.

1. Click on the + New button on the screen.
2. Choose the Sales receipt.
3. Put the customer’s name.
4. Under the Product/service field, click on the Security Deposit [ if it doesn’t exist, kindly follow Step 2: Create the account, in order to create the item ]

Step 2: Mention the security amount

1. Enter the security deposit amount.

Step 3: Save the transaction

1. Click on Save once you have mentioned all the details.

Part 3: Record a Refund of a Security Deposit

Step 1: Locate the Security deposit option.

1. Click on the + New button on the screen.
2. Choose the refund receipt.
3. Put the customer’s name.
4. Under the Product/service field, click on the Security Deposit.

Step 2: Mention the security refund amount

1. Enter the amount that needs to be refunded.

Step 3: Save the transaction

1. Click on Save once you have mentioned all the details.

Conclusion

By properly recording the security deposit in QuickBooks, businesses can manage transparent and well-organized financial records. This procedure makes sure that all accounting standards are followed properly without any dispute.

FAQs:

What type of account is a security deposit in QuickBooks?

In QuickBooks, security deposits are typically classified as assets.

• Current Assets: If you expect the deposit to be returned within a year (e.g., a short-term lease or refundable security deposit), it should be categorized under current assets.
• Long-Term Assets: If the deposit will be held for more than a year (e.g., for long-term leases or contracts), it should be listed under long-term assets.

How do I apply a security deposit to an invoice in QuickBooks Online?

o apply a security deposit to an invoice in QuickBooks Online, follow these steps:

Step 1: Enable the deposit field

1. Go to the Settings gear icon and select Account and Settings.
2. Click on Sales.
3. In the Sales form content section, click Edit.
4. Turn on the Deposit option.
5. Click Save and then Done.

Step 2: Add the deposit to an invoice

1. Go to Sales and select Invoices.
2. Find and open the invoice you want to apply the deposit to, then click Edit.
3. Enter the deposit amount in the Deposit field.
4. From the Deposit to dropdown, select either Payments to deposit or Undeposited Funds.
   Note: If you choose a bank account, the deposit won’t appear in the deposit detail report.
5. Click Save and Close.

This will add the security deposit to your invoice and track it properly in QuickBooks Online.