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Is a security deposit recorded as unearned rent revenue?

 
 
John Richards
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      09-12-2004, 08:01 AM
Just started an intermediate accounting course and I disagree with the way a
refundable security deposit was recorded in a problem I'm attempting. The
problem asks for the necessary end of period adjusting entry to record the
'earned' portion of the unearned rent. The existing balance in the
'unearned rent revenue' account consists of all the paid up rent into the
following year plus a refundable security deposit. In my opinion, because
the security deposit is expected to be refunded to the tenant at the
completion of the lease, it should not be considered revenue (either
unearned or earned). The authors of the book may consider it acceptable to
include the deposit in unearned rent revenue, but there is no way that any
portion of the deposit should be moved into the revenue account as earned
rent. I would put the security deposit in it's own liability account
('security deposits held'?) and leave it there until it is either returned
to the tenant or forfeited by the tenant. Any comments?



 
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John
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      09-12-2004, 10:12 AM

"John Richards" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...

> Just started an intermediate accounting course and I disagree with the way

a
> refundable security deposit was recorded in a problem I'm attempting. The
> problem asks for the necessary end of period adjusting entry to record the
> 'earned' portion of the unearned rent. The existing balance in the
> 'unearned rent revenue' account consists of all the paid up rent into the
> following year plus a refundable security deposit. In my opinion, because
> the security deposit is expected to be refunded to the tenant at the
> completion of the lease, it should not be considered revenue (either
> unearned or earned). The authors of the book may consider it acceptable

to
> include the deposit in unearned rent revenue, but there is no way that any
> portion of the deposit should be moved into the revenue account as earned
> rent. I would put the security deposit in it's own liability account
> ('security deposits held'?) and leave it there until it is either returned
> to the tenant or forfeited by the tenant. Any comments?


I would agree with you (depending on the rent contract)





 
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confused man
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      09-12-2004, 03:06 PM
But in a sense isn't a refundable deposit the same thing as a issuing a bond
from the apartments perspective? at the end of the bonds life they have to
pay the bond off, but in the mean time, it is considered income (minus
interest payments)?

Confused Man

"John" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
>
> "John Richards" <(E-Mail Removed)> wrote in message
> news:(E-Mail Removed)...
>
> > Just started an intermediate accounting course and I disagree with the

way
> a
> > refundable security deposit was recorded in a problem I'm attempting.

The
> > problem asks for the necessary end of period adjusting entry to record

the
> > 'earned' portion of the unearned rent. The existing balance in the
> > 'unearned rent revenue' account consists of all the paid up rent into

the
> > following year plus a refundable security deposit. In my opinion,

because
> > the security deposit is expected to be refunded to the tenant at the
> > completion of the lease, it should not be considered revenue (either
> > unearned or earned). The authors of the book may consider it acceptable

> to
> > include the deposit in unearned rent revenue, but there is no way that

any
> > portion of the deposit should be moved into the revenue account as

earned
> > rent. I would put the security deposit in it's own liability account
> > ('security deposits held'?) and leave it there until it is either

returned
> > to the tenant or forfeited by the tenant. Any comments?

>
> I would agree with you (depending on the rent contract)
>
>
>
>
>



 
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S.M. Serba
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      09-12-2004, 04:44 PM
I agree. A refundable security deposit should not be put in "unearned
revenue". To credit them to a "security deposits" liability account is how I
would handle it.

However, if the security deposit is a "last month's rent deposit" and will
be used to pay the final rental upon receiving notice from the tenant, then
the "unearned revenue" or "last months rent deposit" would be the
appropriate handling.

It just depends on whether it is fully refundable or applied to the last
month's rent.


--
Stephanie Serba, AICIA
Partner, Durham Business Outsource
Accounting & Technology
smserba <at> dbo <dot> ca
www.dbo.ca


"John" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
>
> "John Richards" <(E-Mail Removed)> wrote in message
> news:(E-Mail Removed)...
>
> > Just started an intermediate accounting course and I disagree with the

way
> a
> > refundable security deposit was recorded in a problem I'm attempting.

The
> > problem asks for the necessary end of period adjusting entry to record

the
> > 'earned' portion of the unearned rent. The existing balance in the
> > 'unearned rent revenue' account consists of all the paid up rent into

the
> > following year plus a refundable security deposit. In my opinion,

because
> > the security deposit is expected to be refunded to the tenant at the
> > completion of the lease, it should not be considered revenue (either
> > unearned or earned). The authors of the book may consider it acceptable

> to
> > include the deposit in unearned rent revenue, but there is no way that

any
> > portion of the deposit should be moved into the revenue account as

earned
> > rent. I would put the security deposit in it's own liability account
> > ('security deposits held'?) and leave it there until it is either

returned
> > to the tenant or forfeited by the tenant. Any comments?

>
> I would agree with you (depending on the rent contract)
>
>
>
>
>



 
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S.M. Serba
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      09-12-2004, 04:45 PM
No.

"confused man" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> But in a sense isn't a refundable deposit the same thing as a issuing a

bond
> from the apartments perspective? at the end of the bonds life they have to
> pay the bond off, but in the mean time, it is considered income (minus
> interest payments)?
>
> Confused Man
>
> "John" <(E-Mail Removed)> wrote in message
> news:(E-Mail Removed)...
> >
> > "John Richards" <(E-Mail Removed)> wrote in message
> > news:(E-Mail Removed)...
> >
> > > Just started an intermediate accounting course and I disagree with the

> way
> > a
> > > refundable security deposit was recorded in a problem I'm attempting.

> The
> > > problem asks for the necessary end of period adjusting entry to record

> the
> > > 'earned' portion of the unearned rent. The existing balance in the
> > > 'unearned rent revenue' account consists of all the paid up rent into

> the
> > > following year plus a refundable security deposit. In my opinion,

> because
> > > the security deposit is expected to be refunded to the tenant at the
> > > completion of the lease, it should not be considered revenue (either
> > > unearned or earned). The authors of the book may consider it

acceptable
> > to
> > > include the deposit in unearned rent revenue, but there is no way that

> any
> > > portion of the deposit should be moved into the revenue account as

> earned
> > > rent. I would put the security deposit in it's own liability account
> > > ('security deposits held'?) and leave it there until it is either

> returned
> > > to the tenant or forfeited by the tenant. Any comments?

> >
> > I would agree with you (depending on the rent contract)
> >
> >
> >
> >
> >

>
>



 
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Preston Singleton
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      09-12-2004, 11:12 PM
On Sun, 12 Sep 2004 08:01:45 GMT, "John Richards"
<(E-Mail Removed)> wrote:

>Just started an intermediate accounting course and I disagree with the way a
>refundable security deposit was recorded in a problem I'm attempting. The
>problem asks for the necessary end of period adjusting entry to record the
>'earned' portion of the unearned rent. The existing balance in the
>'unearned rent revenue' account consists of all the paid up rent into the
>following year plus a refundable security deposit. In my opinion, because
>the security deposit is expected to be refunded to the tenant at the
>completion of the lease, it should not be considered revenue (either
>unearned or earned). The authors of the book may consider it acceptable to
>include the deposit in unearned rent revenue, but there is no way that any
>portion of the deposit should be moved into the revenue account as earned
>rent. I would put the security deposit in it's own liability account
>('security deposits held'?) and leave it there until it is either returned
>to the tenant or forfeited by the tenant. Any comments?
>
>

John,

I would agree that the rent deposit should be recorded into a separate
account. It is easier to keep track of that way and more clear. In
real life, an organization might have 100 or more tenant security
deposits to account for. If all of these funds were labeled as
unearned revenue, it may mislead the user of the financial statements
into believing that all of this unearned revenue (or "deferred
revenue" as I like to call it) will eventually be recognized.

In defense of the author of the textbook, he or she is apparantly
taking the point of view that since the Unearned Rent account and
Tenant Deposit account are both liability accounts, it is not
necessary to distinguish between the two.

Preston Singleton, CPA
Austin, Texas
 
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Gary V. Deutschmann, Sr.
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      09-13-2004, 01:24 AM
Hi John

We always had in our chart of accounts an entry named 'Security
Deposits', which is an 'Other Current Liability' account.

TTUL
Gary


"John Richards" <(E-Mail Removed)> verbositized:

>Just started an intermediate accounting course and I disagree with the way a
>refundable security deposit was recorded in a problem I'm attempting. The
>problem asks for the necessary end of period adjusting entry to record the
>'earned' portion of the unearned rent. The existing balance in the
>'unearned rent revenue' account consists of all the paid up rent into the
>following year plus a refundable security deposit. In my opinion, because
>the security deposit is expected to be refunded to the tenant at the
>completion of the lease, it should not be considered revenue (either
>unearned or earned). The authors of the book may consider it acceptable to
>include the deposit in unearned rent revenue, but there is no way that any
>portion of the deposit should be moved into the revenue account as earned
>rent. I would put the security deposit in it's own liability account
>('security deposits held'?) and leave it there until it is either returned
>to the tenant or forfeited by the tenant. Any comments?
>
>
>


 
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John Richards
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      09-13-2004, 02:04 AM
Thank you all for the help - my world is once again in order.

Gary, is that "ver-bo-si-tized", long o with the accent on the -bo-?

John


Gary V. Deutschmann, Sr. <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> Hi John
>
> We always had in our chart of accounts an entry named 'Security
> Deposits', which is an 'Other Current Liability' account.
>
> TTUL
> Gary
>
>
> "John Richards" <(E-Mail Removed)> verbositized:
>
> >Just started an intermediate accounting course and I disagree with the

way a
> >refundable security deposit was recorded in a problem I'm attempting.

The
> >problem asks for the necessary end of period adjusting entry to record

the
> >'earned' portion of the unearned rent. The existing balance in the
> >'unearned rent revenue' account consists of all the paid up rent into the
> >following year plus a refundable security deposit. In my opinion,

because
> >the security deposit is expected to be refunded to the tenant at the
> >completion of the lease, it should not be considered revenue (either
> >unearned or earned). The authors of the book may consider it acceptable

to
> >include the deposit in unearned rent revenue, but there is no way that

any
> >portion of the deposit should be moved into the revenue account as earned
> >rent. I would put the security deposit in it's own liability account
> >('security deposits held'?) and leave it there until it is either

returned
> >to the tenant or forfeited by the tenant. Any comments?
> >
> >
> >

>



 
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Gary V. Deutschmann, Sr.
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      09-14-2004, 02:06 AM
"John Richards" <(E-Mail Removed)> verbositized:

>
>Gary, is that "ver-bo-si-tized", long o with the accent on the -bo-?


You got me on that one John!

TTUL
Gary

 
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