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Level 1

Recording a security deposit

I am unsure if this is the proper place to ask this, however I am doing accounting for a property and a security deposit has been received. I am a little confused on setting up the charts, because in the chart of acccounts, there is a bank option that holds money in trust, which is a contra asset. In the body of the explanation, it says that this account should be offset by a liability account. 

 

I am confused, because the contra asset is already countering the money received. I can see using the liability account, instead of the contra asset, but I do not understand using both. Can someone help me? 

Solved
Best answer November 25, 2017

Best Answers
Highlighted
Level 15

Recording a security deposit

"there is a bank option that holds money in trust, which is a contra asset"

The Trust Bank is a Bank type = an Asset. The Liability account is a Liability type. Neither is "contra-" in function or balance.

 

No matter which QB product you are using, it is best to understand that Security Deposits are in the Name of that tenant; that = using Customer transaction for the Receipt of the security deposit. Your item (service) links to the Liability account, and you list this on the Sales Receipt for the payment to you of that security deposit. This gets deposited to Trust Bank.

 

The Custom reporting should show you that Trust Bank amounts by name = liability account balance by name. That also helps you understand that anything in and out of Trust Bank should reference Liability. Here are some example activities:

 

The tenant is moving out and you are paying them their security deposit. You enter a check and use that Service item, on the Trust Bank check. That removes this amount for this name from trust bank and trust liability = it still is in balance by name.

 

Or, they are leaving owing some damage or final rent. This might even be a month with multiple tenants moving out. You write one check from Trust bank to the firm, and on it list that Liability item multiple times, allocating per tenant, for the amounts you need to "pretend it came through the mail" and then you Process the amounts as Receive Payment against the final rent invoice, damage invoice, etc.

 

If there is a remaining balance owed from the security deposit (liability = trust bank) to the tenant, you can write a check to them, or use the Credit Memo method (return process) to list the Security deposit item here, and issue the Trust Refund check from here, as well.

 

The final task is to Manage trust bank = trust liability. Trust Banka is managed by bank statements. Trust Liability is managed by Customer Names. Create a custom report on that account to total or group by name. That way, you see when a name is 0. You reconciled that account to an ending balance of 0, clearing only the activities for the name(s) that is at 0. You then can filter on Cleared Status = No, to see Current balances, or no filter on Cleared Status, to see All activities. These are useful, if you get Audited.

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11 Comments
Highlighted
Content Leader

Recording a security deposit

Hi there Tdevitto91,

 

Welcome to the Community. I'd like to offer my assistance.

 

I would suggest speaking to your accountant about this matter. Some users have made deposits just using the liability account.

 

I found a link for you that will provide more details: https://community.intuit.com/questions/1317234-what-accounts-should-a-real-estate-office-use-for-sec....

 

Please let me know if there's anything else I can help with.

Highlighted
Level 15

Recording a security deposit

"there is a bank option that holds money in trust, which is a contra asset"

The Trust Bank is a Bank type = an Asset. The Liability account is a Liability type. Neither is "contra-" in function or balance.

 

No matter which QB product you are using, it is best to understand that Security Deposits are in the Name of that tenant; that = using Customer transaction for the Receipt of the security deposit. Your item (service) links to the Liability account, and you list this on the Sales Receipt for the payment to you of that security deposit. This gets deposited to Trust Bank.

 

The Custom reporting should show you that Trust Bank amounts by name = liability account balance by name. That also helps you understand that anything in and out of Trust Bank should reference Liability. Here are some example activities:

 

The tenant is moving out and you are paying them their security deposit. You enter a check and use that Service item, on the Trust Bank check. That removes this amount for this name from trust bank and trust liability = it still is in balance by name.

 

Or, they are leaving owing some damage or final rent. This might even be a month with multiple tenants moving out. You write one check from Trust bank to the firm, and on it list that Liability item multiple times, allocating per tenant, for the amounts you need to "pretend it came through the mail" and then you Process the amounts as Receive Payment against the final rent invoice, damage invoice, etc.

 

If there is a remaining balance owed from the security deposit (liability = trust bank) to the tenant, you can write a check to them, or use the Credit Memo method (return process) to list the Security deposit item here, and issue the Trust Refund check from here, as well.

 

The final task is to Manage trust bank = trust liability. Trust Banka is managed by bank statements. Trust Liability is managed by Customer Names. Create a custom report on that account to total or group by name. That way, you see when a name is 0. You reconciled that account to an ending balance of 0, clearing only the activities for the name(s) that is at 0. You then can filter on Cleared Status = No, to see Current balances, or no filter on Cleared Status, to see All activities. These are useful, if you get Audited.

View solution in original post

Highlighted
Level 2

Recording a security deposit

Qbteachmt:

If this is a liability (which i understand that it is) and you record this with a sales receipt as opposed to an invoice (BTW why couldn't you record as invoice?)  Then is there a reason this still shows up on Item Profit Detail report - shouldn't this $1095 not be seen as "profit"?

Thanks!

Highlighted
Level 15

Recording a security deposit

@ThanksInAdvance

 

invoice = I need to enter that the Charges are of this date, but are Unpaid, as of this date. The Payment is a separate transaction, with its own date, that follows later and/or in partial amounts. This is Accounts Receivable = I am going to receive the payment later = Two Steps.

 

Sales Receipt = for the Date of this activity, I also am Paid = One Step.

 

Both are Sale Transactions where you list customer name Charges. The accounting for what that charge is doing, is controlled by what you listed. You listed it on the Transaction Type that reflects which condition applies:

 

Paid later, for this date <== Invoice

Paid already for this date <== Sales Receipt

 

"If this is a liability (which i understand that it is)"

 

For a Landlord and a Law Firm, prepayments meet their requirement for Trust Fund accounting.

 

"you record this with a sales receipt as opposed to an invoice (BTW why couldn't you record as invoice?)"

 

You use what applies for when you are being Paid relative to the date. Example: A landlord uses Month End invoices, and the Payment is supposed to Terms Net 5 = rent paid by the 5th of the new month or it is considered Late. They don't Send the invoice; it is their Tracking transaction.

 

"Then is there a reason this still shows up on Item Profit Detail report - shouldn't this $1095 not be seen as "profit"?"

 

For any report, you control the Filters. For instance, for Job Profit reports, they start out filtered on Account = all income/expense. For the Item Profit reports, they start out filtered on all Sales items.

 

You need to make your own Filtered reports, retitle and Memorize them. Example:

 

Item "profit" really is Item Activities. If you don't want Balance Sheet accounts, then change that Filter for Accounts = all income/expense only. I prefer to use an Other Charge type item for Prepayment management, so that I clearly see they are not related to sales or charges for goods and services, and I want to see them on this reporting, to keep an eye on the Activity.

 

For Sales Reports and Job reports, for a trust account activity, I make a custom transaction report, filter on Account = the Liability account, set it to Total By Name, and rename it Customer Prepayment Balances - All Activity. When a name is at 0, you reconcile the liability account using only and always the ending balance of 0. You are going to clear Only the names' activity where that name is at 0 on your All Activity report. Once you finish that first reconciliation, open your All activity report. Filter on Cleared Status = No. Retitle this as Current Balances and memorize as New, not replace. Now you use this report to manage Liability Balances, to prevent Over-refund, for instance.

 

For Job reports, when the job has all WIP items, you need to customize and remove the Accounts Filter entirely, to see your WIP activity, such as a Property Flipping operation.

 

My Favorite report is Sales by Customer Summary, set Columns by Item Type. Filter and Remove the Item Filter. Now you got a New Column = Sales Tax amounts, too.

 

Start making, filtering, retitle and Memorize your own reports. This is Your data to understand, so give yourself proper perspectives.

 

Please see my attachment.

Highlighted
Anonymous
Not applicable

Recording a security deposit

I'm a QB newbie.  The problem with many of the answers I'm finding on-line is that the experts assume you already know the specific sequence of menu clicks required to implement the proposed solution.  I found a more clearly stated solution to this topic here:

https://www.veronicajk.com/biz-builders/bookkeeping-taxes/entering-tenant-security-deposits-in-quick...

Highlighted
Level 1

Recording a security deposit


@Tdevitto91 wrote:

I am unsure if this is the proper place to ask this, however I am doing accounting for a property and a security deposit has been received. I am a little confused on setting up the charts, because in the chart of acccounts, there is a bank option that holds money in trust, which is a contra asset. In the body of the explanation, it says that this account should be offset by a liability account. 

 

I am confused, because the contra asset is already countering the money received. I can see using the liability account, instead of the contra asset, but I do not understand using both. Can someone help me? 


 

Highlighted
Level 1

Recording a security deposit


@Tdevitto91 wrote:

I am unsure if this is the proper place to ask this, however I am doing accounting for a property and a security deposit has been received. I am a little confused on setting up the charts, because in the chart of acccounts, there is a bank option that holds money in trust, which is a contra asset. In the body of the explanation, it says that this account should be offset by a liability account. 

 

I am confused, because the contra asset is already countering the money received. I can see using the liability account, instead of the contra asset, but I do not understand using both. Can someone help me? 


 

Highlighted
Level 1

Recording a security deposit

I did not Depoist

Highlighted
Level 1

Recording a security deposit

thank you very much for this link, I am new at QB and appreciate the simplicity of the instructions. I really appreciate it!

Highlighted
Moderator

Recording a security deposit

Hi, LaApt.

Welcome to the Community. I'd be happy to provide you additional resources that will help you in your business.

 

Becoming a reliable source of information about accounting, tax compliance, and best business practices is one great way to get known in your industry.


We have resources available to help you grow and manage your business. Here are a couple of resources about QuickBooks Online that you might find interesting:

 

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Highlighted
Level 1

Recording a security deposit

Best answer ! solved the issue in 5min !, thanks

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