How to Collect a Security Deposit from a Tenant and Distribute it to the Owner as an Owner Held Security Deposit

Do you need to collect a security deposit from a tenant and then send it to the owner? This article will show you a best practice on how to accomplish that.

Summary

  1. Create an income chart of account named Security Deposit Owner Transfer
  2. Record security deposit collected from the tenant on the lease
  3. Create a journal entry to transfer the amount from the Owner Held Security Deposit chart of account to the Security Deposit Owner Transfer chart of account
  4. Distribute the amount to the owner

1. Create an income chart of account named Security Deposit Owner Transfer

If you do not have a designated account already created, follow the steps below to create it.

  • Click on your name in the upper right corner then select Settings from the dropdown menu.
  • Under the Accounting section click on Chart of Accounts.
  • Click New Account.
  • On the New Account page enter the following:
    • Name - Name the account "Security Deposit Owner Transfer" or something that is beneficial to you.
    • Number - Enter a number that is used for an income type account.
    • Account Type - select income.
    • Make sure "Use for Tax Tracking" is turned off.
  • Click Save.

 

2. Record security deposit collected from the tenant

You can skip this section if the security deposit collected on the lease has been recorded.

  • First, create a charge for the security deposit.
    • Go to a lease by clicking on LEASES from the left navigation menu.  Then search for the appropriate lease and click on it.  This will take you to the lease view page.
    • Click on the Green Actions button and select Add Charge from the dropdown menu.
    • On the New Lease Charge page enter the following:
      • Account - Choose the appropriate security deposit account, a common choice is a liability account, such as "Owner Held Security Deposit"
      • Amount - Type in the dollar amount that is being charged.
      • Date Posted - What date was the security deposit charged.
      • Description - Type in a description, ie Security Deposit.
    • Click Save.
  • Second, record payment of the charge that was just created (or have the tenant pay the charge through the resident portal
    • From the lease view page, click on the Green Actions button and select Record Payment from the dropdown menu.
    • Fill out the Record Tenant Payment form top section
      • Tenant - Select the tenant name
      • Amount - Type in the dollar amount received.
      • Date Posted - What date was the security deposit paid.
      • Bank Account - Select the appropriate bank account where payment will be deposited too.
      • Payment Type - Select the appropriate payment type, i.e. Check, Cash, Other
      • Reference -  Type in a reference number or text (ie. check number or money order #)
      • Description - Type in a description, ie Security Deposit Paid.
      • The bottom section of the page shows if there are any unpaid charges to pay. Pay the lease charge(s) that were created earlier.  Fill in the appropriate Amount To Pay.
    • Click Save.

 

3. Create a journal entry to transfer the amount from the "Owner Held Security Deposit" chart of account to the "Security Deposit Owner Transfer" chart of account

  • Click on ACCOUNTING from the left navigation menu.  Then click on Transactions from the dropdown menu.
  • Click on the Green Actions button and select New Journal Entry from the dropdown menu.
  • Fill out the New Journal Entry form:

    • Ledger - Type to search for the applicable property or unit and select it
    • Date Posted - Choose a date.
    • Description - Type in a comment, ie Transfer Security Deposit to Owner.
    • Account - Choose the Owner Held Security Deposit account, ie Owner Held Security Deposit.
    • Debit - Type in the applicable dollar amount.
    • Credit - Type in 0.
    • Account - Choose an account, ie Security Deposit Owner Transfer.
    • Debit -Type in 0.
    • Credit - Type in the same applicable dollar amount that was typed in earlier.
  • Click Save

4. Distribute the amount to the owner

Simply use the Pay Owner process to distribute the amount to the owner.

  • From the left navigation menu click on ACCOUNTING and then click on Money Out from the dropdown menu.
  • Now select the green Actions button and select Pay Owners from the dropdown menu.