Security Deposit Return-Less repairs

 Hi,

We rent out commercial space and in our lease, it is specified that the security deposit is returned to the tenant at the end of the lease less the cost of any repairs we need to do to return the space back into it's original condition.

How would I account for the return of the security deposit which is less than what is is my on my financial statements?

For example, I received a security deposit of $25,000 5 years ago, which has been classified as a long-term liability. Now I have $5,000 of repairs to do and will only return $20,000 to the tenant. What entries would I do to pay the repairs from the security deposit and then remit the balance to the tenant?

  • FormerMember
    FormerMember

     Hi:  When you prepare the cheque to the tenant for the $20,000.00, use the Make Other Payment option in the Payments window and put the Debit to the Security Deposit account.   That will clear twenty thousand of the amount.   Next, use the General Journal and prepare a journal entry "To Transfer portion of Security Deposit to Repairs Expense", or something to that affect in the Description line, and Debit the Security Deposit account for the other $5,000.00  and Credit whatever account you debited when you paid for all the repairs to the unit.   

    You will have paid back the tenant, moved the rest to offset the expense account that was used when expensing the repairs,  and the Security Deposit account will be cleared.     Rita 

  •  Hi Rita,

    If I inderstand you correctly, the procedure should be like this:

    I record the repair expense for $5,000 and my entry is:

    dr repair expense 5,000

    cr bank 5,000

    I pay the tenant the remainder of the balance

    dr security deposits 20,000

    cr bank 20,000

    I transfer the remainder of security deposit to repairs expense

    dr security deposit   5,000

    cr. repair expense  5,000

     

    If this is correct, I'm a bit confused at the last entry. To me, it's as if the repair expense for $5,000 is cleared out. Is this because the actual repair expense is not ours, but the tenants? We should not be recording this expense as a part of our financial records?

     

  • FormerMember
    FormerMember

     Hi:  Yes, the repair expense will be cleared out because you "recaptured" the cost from the tenant.  So in effect you did not bear the cost of the expense, the tenant did.  So you will  be showing the expense cost in your books when you paid for the repairs, but you will also show the recapture of the costs, which will net out that expense. 

    The tenant will have to record the cost in their books in order to show the full amount of the security deposit "not coming back to them".   Rita