Journal Entry to Write Off Security Deposit
Company write-off security deposit when the rental contract comes to the end and security is used to settle the last periods.
A security deposit is the amount of cash that tenants pay to the landlord as security during the rental agreement. It will be used to settle the rental fee at the end of the rental contract. It helps the landlord to ensure the property remains in good condition at the end of the contract.
The amount of the security deposit will depend on the agreement between the tenant and landlord. It is usually around a few months of rental fees. The tenants need to make payment at the beginning of the rental period.
The landlord will record the security deposit as the liability on the balance sheet. It is not the revenue as the landlord does not yet provide rental service to the customers.
The security deposit is recorded as the current assets on the tenant’s balance sheet. It will be reversed to the rental expense at the end of the contract when they use the rental service.
Based on the accrued accounting, revenue is recorded when the goods or services deliver to the customers. The expense is recorded when the company consumes the goods or services. Security deposit is recorded as assets and liability on the balance sheet of the tenant and landlord respectively.
At the end of the contract, the deposit amount is used to cover the rental fee. The tenant is not required to pay for that period, but they have to reverse the security deposit to rental expense. On the landlord’s side, they are not receiving the rental fee, but they have to reverse the deposit to the rental income.
Journal Entry to Write off Security Deposit (Landlord)
When the company receives the security deposit, they have to record cash received and liability on the balance sheet.
At the end of the rental contract, the deposit is used to settle the last few periods of the rental fee. The landlord has to write off the security deposit and record revenue.
The journal entry is debiting the security deposit account and credit rental income.
| Account | Debit | Credit |
|---|---|---|
| Security Deposit | XXX | |
| Rental Income | XXX |
The security deposit is the liability on the landlord balance sheet, so when we debit to remove it. At the same time, they should record rental income as the service already provided to the tenant.
Example
Company ABC rent the building to a customer $ 50,000 per month to the customer. Both parties agree to make a security deposit of $ 150,000 to settle the rental fee for the last three months. Please prepare the journal entry to write off the security deposit on the landlord’s record.
At the begging of the rental contract, the landlord will receive a security deposit from the tenant amount $ 150,000. The journal entry is debiting cash $ 150,000 and credit security deposit $ 150,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 150,000 | |
| Security Deposit | 150,000 |
At the end of contract, the security deposit has to reverse to rental income.
In the last third month, the journal entry is debiting a security deposit $ 50,000 and credit rental income $ 50,000.
| Account | Debit | Credit |
|---|---|---|
| Security Deposit | 50,000 | |
| Rental Income | 50,000 |
In the last second month, the journal entry is debiting a security deposit $ 50,000 and credit rental income $ 50,000.
| Account | Debit | Credit |
|---|---|---|
| Security Deposit | 50,000 | |
| Rental Income | 50,000 |
In the last month, the journal entry is debiting a security deposit $ 50,000 and credit rental income $ 50,000.
| Account | Debit | Credit |
|---|---|---|
| Security Deposit | 50,000 | |
| Rental Income | 50,000 |