How do I record a security deposit I am putting up to one of my vendors on behalf of one of my clients?

reliancebrokers · ‎October 15, 2018

The exact scenario is I am an independent consultant for multiple HR Outsourcing services. The program I am setting them up with is one of my vendors. I am putting up a $1,000 security deposit on my client's behalf which I expect to be refunded to me within a month or two. The $1,000 is part of a service fee I have already billed my client and recorded as fee income. This deposit will be refunded to me by my vendor within 6 weeks. Below are a few details.

- I bill my clients an enrollment fee / service fee when they are starting with one of our programs. In this example, $3,000 enrollment fee (assigned to Fee Income Account) of which $500 I pay to my vendor and record in a expense account for vendor enrollment fees.

- This particular vendor is requiring an additional $1,000 security deposit for this client which will be refunded to me after several weeks. I have already transmitted the $500 vendor setup fee and the $1,000 security deposit to my vendor. I recorded the security deposit in the same expense account that I use to pay my vendor setup fees. I am not sure if this is correct.

Am I correct in assigning the security deposit to an expense account or should it be assigned to other assets?

When I receive the refund from my vendor and record it to the fee income account, will this be duplicating my that income since I have already recorded it to my fee income account previously? Or, should it be assigned to some other account to offset the income?

Rustler · ‎October 15, 2018

The security deposit you pay is an asset

You can do this one of two ways

1. create an asset account named for the vendor-deposit and post it to that account

or

2. pay the security deposit and use accounts Payable as the expense for the payment, that will create a vendor credit. If you do it that way, when you get refunded make the deposit and use a/p as the source account for the deposit, then use pay bills and select the bill the deposit make and apply the credit.

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Rustler · ‎October 15, 2018

The security deposit you pay is an asset

You can do this one of two ways

1. create an asset account named for the vendor-deposit and post it to that account

or

2. pay the security deposit and use accounts Payable as the expense for the payment, that will create a vendor credit. If you do it that way, when you get refunded make the deposit and use a/p as the source account for the deposit, then use pay bills and select the bill the deposit make and apply the credit.

dfrancoeur65 · ‎January 22, 2019

You should be tracking this as an asset and not as an expense!

One of the potential ways you can handle this is by making a manual journal entry.

First, create an asset account (Other Current Assets "type") and call it. Security Deposits Made on Behalf of Clients (I like to be as descriptive as possible!)

Then create a journal entry.

Debit: Security Deposits Made on Behalf of Clients $1,000 [Make sure to add the customer!]

Debit: Initial Set up expense $500 [This gets offset by the fee income you charged]

Credit: "Bank account you paid it out of" $1,500

Then when you get the money back you can reverse that entry

Debit: Bank account you receive the refund $1,000

Credit: Security Deposits Made on Behalf of Clients $1,000

dfrancoeur65 · ‎January 22, 2019

Let me know if this helps!

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How do I record a security deposit I am putting up to one of my vendors on behalf of one of my clients?