Handle Deposits

How to Handle a Customer's Security Deposit

A refundable security deposit received from a customer should not be recorded as income.

This is because the money may need to be returned to the customer at the end of the leasing period.

Create a Liability Account

1. In the Chart of Accounts, create an account such as:
2. Customer Security Deposits
3. The account should be classified as a Liability Account.

Receiving the Security Deposit

1. When the customer pays the security deposit, record the amount against the Customer Security Deposits liability account.
2. To do that, navigate to Finance Mgt, Process General Receipt, At the From pull-down menu. select Customer.
3. Then, enter the customer name and Branch name. Fill in the table and select a suitable GL account. Please check with the accountant which account should be used. Or, create a GL Code for "Customer Security Deposit".
4. The accounting entry will generally be:
   1. Debit: Bank
   2. Credit: Customer Security Deposits
   3. The deposit is therefore shown as an amount owed back to the customer and is not included as sales income.

Returning the Security Deposit

1. When the leasing agreemt ends and the deposit is refunded:
   1. Debit: Customer Security Deposits
   2. Credit: Bank
   3. This clears the security depenosit liability.

If Part of the Deposit Is Forfeited or Used

1. If part of the security deposit is used to settle unpaid rental, damage charges or other agreed charges, the relevant amount should first be applied to the appropriate invoice or income account.
2. Any remaining refundable balance should be returned to the customer.

Summary

1. Refundable security deposit → Liability
2. Not Rental Income
3. Not Sales Income
4. Not Cost of Goods Sold
5. Refunded at end of lease, subject to the leasing agreement