In this tutorial, Linda Artesani of Artesani Bookkeeping walks landlords and property managers through the complete workflow for managing security deposits in QuickBooks Online. She begins by explaining why a security deposit is recorded as an Other Current Liability and sets up the appropriate liability account. She then creates service items for "Security Deposit Held" and "Rent" (and later a "Repairs & Maintenance" item for damages). Using a sample tenant, Mary Gresser, she demonstrates how to record the initial move‑in transaction with a sales receipt that captures both rent and the security deposit, and how to set up a recurring monthly rent invoice. The video shows how to refund a full deposit via a check, how to apply part of a deposit to unpaid rent using a credit memo, and how to handle situations where the deposit is used to cover damages, recording the expense against a repairs account. Linda also covers how to reconcile the security‑deposit liability account, generate balance‑sheet and profit‑and‑loss reports to verify activity, and produce a year‑end listing for the CPA. Throughout, she offers practical tips (e.g., renaming "customer" to "tenant" globally, using QuickBooks Online merchant services, and ensuring compliance with Rhode Island’s Tenant‑Landlord Act). The tutorial aims to demystify security‑deposit accounting, reduce errors, and keep landlords compliant and organized.
Chapters
Hi there, Linda Artesani, Artesani Bookkeeping. So today we're going to talk security deposits, and it's a topic I know well. We own property in Rhode Island, several buildings, about 65 units, and been doing work for the apartment, and it's, it's an interesting business to be in. But I wanted to talk security deposits because it's one of those transactions that can get a little bit of confusion around it. So let's go into the sample file. So security deposit basically is an account that you're going to create as this other current liability. It's an other current liability because in theory, you move into my apartment, you give me $1,000, I hold on to it while you're my tenant, and then when you move out, I give it back because you left my apartment perfect condition. And I would love it if that was the way it was all the time. Unfortunately, it is not. So, but this is an important category, right? So it's not income for me if this tenant does exactly what I just described. I give the money back. So it just sits on the balance sheet until the tenant moves out, then I give them their money back. So that's how you would set up a security deposit account. It's another current liability. The other account you'd want to have would be rental income, right? Because it's not— your business is not just sales, it's going to be rental income. So I believe I already have one of those set up. Yep. And, um, it's rental income. Just the other primary income is what the main income is for this business. Another tip that I love, one of the things I love about QuickBooks Online is you can come over to the company settings here and come down to change the word to tenant. And then, you know, this even here, so you can just pick it and then it'll change globally in your file the name tenant. I'm not going to do that in my sample file. My sample file has a lot of stuff in it. Even the chart of accounts is a little wild and woolly. So let's come over to sales and I'm going to hit up my tenants. And I'm just going to grab a tenant and put the initial, initial invoice. In this case, if they're signing up with me right on the spot and they're giving me $2,000, $1,000 for rent, $1,000 for security deposit, I'm going to hand them a sales receipt. I'm not going to give them an invoice, right? They're going to pay me right now. Pay me now. I'm going to make a sales receipt. Now the key is, before we even get to that step, we're going to come over to the gear and we're going to set up a couple of products and services because now we're selling them The product is a security deposit. The product is rental income, right? So we're going to set up the security deposit. Here it is, and I'm going to edit it so you can see the setup. So just the name security deposit. I like it to say security deposit held so they know it's just something I'm holding on to. I don't put a rate in because maybe the rents— with 65 units, the rents are all different. Some are the same, but a lot of them are different. And then the deposit account is— the income account's not really an income account, but that's where I want that money to go. So it's the security deposit, the new account we just set up. Of course, you'll want rental income, and I don't know if I set that one up. Rent. So here it is. I've got rent. We'll edit it. And in this case, I want it to go in my rental income account. And then hit save. So again, it's a service item. I'm just going to put rent for the month. And save and close. Now we can go create that invoice for Mary. So let's grab Mary again, Mary Gresser. I'm going to make a sales receipt. And I'm going to use the 2 items, right? So rental income, I just collected the rent for $1,000. She's going to move in November 1st, and in this case, that would be Prepaid rent, which I said we'll get into another topic someday, and security deposit. So let's pretend she's moving in now, and the security deposit. So she owes me $2,000. She hands me a check right on the spot. I put the check in, I put the reference number in, and I hit save, and I send it to her and give it to her by email. So I have to print. It's wonderful. So now I also one of the next things I want to do now she's going to start getting rent every month. I want to also create her invoice for the following month. So for November first, I want to show her. Make a rental income invoice because I want her to be reminded to pay her rent. Sometimes you can forget, and this way it's in there, and I want to memorize it or make it recurring, as they call it in QuickBooks Online, so I can make that happen every month to remind them, and they can pay me if I'm set up on this QuickBooks Online merchant services. They can pay me right through this, which is fabulous. So in this case, it would just be the rent. And then I would put the amount in, and then I'd save it. So notice I didn't put rent for January, rent for February, rent for March. I just keep it simple, right? The KISS method. So rent for the month, the month is November. Perfect. Now I'm going to make this recurring. I don't want to make this invoice now because I already just collected the money on the sales receipt. So I'm going to make it recurring. And in this case, you know, I don't have— I have an email here. I can just Send it to an email. If I collect it on credit card, you can check there. Free bank transfer, you can click there. I like to send it out to them 3 days in advance so that they are reminded that they need to pay the rent in a couple of days. So that's a nice way to do it. And then just, you know, your start date, 11/1. And so it's done, it's saved, and it goes— it'll go to Mary. So that's all you have to do. I'm not going to save this one, but that's all you have to do to set up the The account. Now let's say Mary, fast forward, she's lived with me for a year and now I gotta give her back her amount because she left the apartment beautiful, clean, sparkling. So how do I give her back her security deposit? She's paid in full for her rent so I don't have to chase her for money. How do I do that? So I'm gonna go over to the plus sign. I'm gonna give her a check. Well, we'll just pick anybody. So Mary Carter, she's now moved out. I gotta give her back her security deposit. So in here I just use the same item, right? It's gonna pull it out of the security deposit. account and pay her back. Really easy, simple. You can print the check, mail it to her. A lot of times for me— make sure you get the right bank account— a lot of times for me, I end up, if they're getting the money back in full, I actually go on online banking and send it out because I'm in Florida, they're in Rhode Island, and it gets the check to them faster. But yeah, that's how I would do it, and obviously I get her new forwarding address and it would be wonderful. So I'm going to create the invoice for Mary for 11/1 and rent. And I'm doing this because I want to show you what happens if the tenant moves out and she didn't pay her rent. So Mary had a short stay with us and she didn't pay her rent for November. She moved out on the 15th and just said, just take it off my security deposit. It's not legal in the state of Rhode Island anyway to do that, but if you're stuck with the tenant moved out, you've got the security deposit, they didn't pay the rent, you can apply it. I always remind the tenants that by the Tenant-Landlord Act, which is like the Bible for us in Rhode Island, you have to follow it to the letter of the law and how all the rules are in place and the laws that are in place for this particular transaction, especially when a tenant moves out. You're going to send them a letter. There's a lot of steps. So in this case, I am going to send her back $500, but I want to apply my security deposit to this $1,000 because she owes me $500 worth of rent. So I'm not going to give her back $1,000. She owes me $500. How am I going to do that? Well, you're going to come over to here, new transaction. I'm gonna make a credit memo. And in the credit memo, I'm gonna make a credit memo for security deposit, and I'm gonna take my $500 back. So when I do that, it dropped her balance down to $500. And then I'm actually gonna go in here because she moved out. I'm gonna go in here and make this say $500 because she moved out. And if I had a different setup with the item, I could put like 0.5, but rent for month, I would put in here notes, right? Tenant moved out on the 15th. And that way I've got notes to know that the tenant moved out, you know, 1/2 month rent due, and then something like that. So now that I've got that, it's all tied out. She's done. I still owe her $500 though, right? So I need to apply this. You can see the credit memo is not applied. So to apply this, I'm just going to come over to payment and apply the credit memo to the rent that was left and save and close. Now I still owe her $500, right? There's still $500 of her money sitting in that security deposit. I gotta refund her that. Just come up here to check. Write her a check. Give it back. So you know, Mary, Mary Gresser. Where'd she go? There she is. Mary Jane Gresser. And then I would just come over here and I just say rent. I'm sorry, security deposit. Take the security deposit, five hundred dollars, and pay her back. Print later. Print it out. If I sent it by In this case, I would not send it by going onto my online banking and sending it to her because she needs the letter, and I want the letter to be together with the check and the explanation. So save and close. So let's see how this all transpired on the balance sheet and the profit and loss, because I should be able to see the income, see the money coming into the security deposit account. So now if I come back to my balance sheet, I have to cycle it because it wants to switch dates here. My balance in my security deposit is zero. If I come over to my reports and grab the profit and loss report, I should see some money in there, right? Mary's $500, right? And there she is. Now she paid me the $1,000 to start, and then she paid me the $500 for the following month that she skipped out on. So $1,500 total. So coming to the profit and loss report, I collected $1,000 for October's rent. I collected half a month's rent for November. My rental income should be $1,500 if Mary Jane is the only one in here, which she is. So let's say Mary didn't— she was really bad. So what Mary did here Let's say she left me with some damages. How am I going to apply the damages? So I'm going to go back to that check where I paid her. Actually, go up here to her check. Let's just say that she's going to get nothing back because she damaged my unit and did not— she did not leave my apartment leaving goods. She left it dirty. She left it damaged. That's why she took off. So to put this in perspective, I'm going to have to make another item, right? Repairs and maintenance. So I want to make an item for repairs and maintenance, damages to building or apartment, and then you would list them out, line item them out. In this case, I want to put it as a minus $500, right? So it's a zero check transaction. But I want to show that I've applied the rest of that, the rest of that security deposit in this case. I want to make this transaction. It's just a zero check, but it's going to have the effect of reimbursing me for expenses that Mary Jane damaged my apartment and I had to pay out, maybe to fix the blinds, clean the refrigerator, the carpets were really bad, she damaged the carpets. I want all of that applied out of that remaining $500. Okay. So yes, it's an in-house transaction. It's just a QuickBooks transaction. You're obviously not going to mail the lady a zero check. However, you want to show all of that money coming out of the bank account as well as showing the reimbursement to the expense account to repairs and maintenance. So that way you've lowered the amount of money that you paid out of your pocket because Mary Jane has now contributed the $500 that she should have gotten back on her security deposit. And that's how you get that tied out. As people come and go, especially with— we have 65 units, it can happen. We used to have 100, 97 actually. So it used to be a problem. People come, people go. You want to keep reconciling that. At year end, you actually have to give a listing to the CPA of the money that you hold in security deposit. You need to have a list. I have a spreadsheet, but you can actually do it here, making sure as you go along. I want to reconcile Mary out, so I just come over here and you can reconcile security deposit, right? This is nice. You can just come over and pick the security deposit account. Not that asset one, that's a different one. This is a security deposit, other current liability, you know, and whatever the balance is, $11,518. And I'm going to see where Mary's money came in, where Mary's money went out, right? So I want to see that, and here it is. I'm going to select all. I'm perfect. Yay, it's good. So that's how I work in the security deposit. So for the spreadsheet, what I would do is come in here at the end of the year, and whatever people are still in here for accounts amounts, you just reconcile off the people that leave, and then whatever's left for the balance, that's your balance. And you would just send that out to— and put it— I put in the spreadsheet and give it to the CPA just for his records so he has a complete record of what I'm holding, whose monies I'm holding. It's very important. Big part of making sure you're compliant on your tax return with rental properties. So I hope these little tips help you in working with a security deposit account. It's a little hard to track, but if you keep an eye on it and reconcile it every month, I think it keeps it manageable. And I'm all about making sure that the steps— even though the workflow has got a lot of steps to it, it will definitely make everything go smooth. So I hope that makes this an easier transaction for you, and at least it clarifies it for you exactly what it is and why you're holding it. And if you have any questions, comments, if you'd like another video on a topic such as this, please feel free to reach out to me. My name is Linda Artesani, Artesani Bookkeeping. Thank you. Bye.
