The general rule is that a landlord or property manager can only withhold deposit money for actual damages, material or financial. Meaning, you can deduct money if they owe you past due rent and fees, or caused damages beyond normal wear-and-tear.
Deposit is recorded in your books as a liability. Once you withhold money from the liability you turn it into income to cover expenses.
Such income can be recorded as other income or security deposit income. If you don’t have an account you can create such an income account in the chart of accounts.
1. Apply withholdings of deposit from tenant to expense
Note: To record a withhold of deposit from tenant to be able to apply to an expense, you should get a quote by the contractor first, so that you know how much you need to apply to the expense. Once you have that you can
- Go to accounting and select ‘add refund’
- Look up the deposit that you recorded as paid by tenant by entering the tenant name and property unit and lease agreement. If there was a deposit payment the deposit amounts will show up, if not, you need to refine the data you entered.
- Reduce the amount next to the amount that you had received for the deposit that you want to reduce (in case there is more than one), and
- Add a line with the type of expense you would like to use the funds for and enter the vendor and the amount and save.
- The booking now distributes the refund across the refund to the tenant and the allocation of the withholding to the expense account that you want to apply the withholdings against.
2. Edit refund with applied withholding amount towards an expense
In case the split refund with the withholding needs to get edited because the actually withholding amount or account needs to get edited, you simple click into the transaction account and click edit. Once you clicked into edit deposit refund transaction record, you can change the information and can save.
3. Make a split payment towards the refund and the expense invoice.
The refund transaction with a withholding applied to an expense creates a split transaction that can be paid separately.
Click into ‘make payment’ and it shows the break down by account for
- The refund of the partial deposit refund to tenant AND
- The payment against the expense towards the vendor/service pro.
Since the refund and the payment are being made from the security deposit bank account, this is the bank where you will make the payment from.
Still have questions?
Open the round conversation icon on the lower right corner and ask us anything.