Is a security deposit recorded as unearned rent revenue?

Discussion in 'Accounting' started by John Richards, Sep 12, 2004.

  1. 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 Richards, Sep 12, 2004
    #1
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  2. John Richards

    John Guest

    "John Richards" <> wrote in message
    news:...

    > 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)
     
    John, Sep 12, 2004
    #2
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  3. John Richards

    confused man Guest

    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" <> wrote in message
    news:...
    >
    > "John Richards" <> wrote in message
    > news:...
    >
    > > 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)
    >
    >
    >
    >
    >
     
    confused man, Sep 12, 2004
    #3
  4. John Richards

    S.M. Serba Guest

    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" <> wrote in message
    news:...
    >
    > "John Richards" <> wrote in message
    > news:...
    >
    > > 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)
    >
    >
    >
    >
    >
     
    S.M. Serba, Sep 12, 2004
    #4
  5. John Richards

    S.M. Serba Guest

    No.

    "confused man" <> wrote in message
    news:...
    > 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" <> wrote in message
    > news:...
    > >
    > > "John Richards" <> wrote in message
    > > news:...
    > >
    > > > 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)
    > >
    > >
    > >
    > >
    > >

    >
    >
     
    S.M. Serba, Sep 12, 2004
    #5
  6. On Sun, 12 Sep 2004 08:01:45 GMT, "John Richards"
    <> 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
     
    Preston Singleton, Sep 13, 2004
    #6
  7. 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" <> 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?
    >
    >
    >
     
    Gary V. Deutschmann, Sr., Sep 13, 2004
    #7
  8. 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. <> wrote in message
    news:...
    > 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" <> 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?
    > >
    > >
    > >

    >
     
    John Richards, Sep 13, 2004
    #8
  9. "John Richards" <> 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
     
    Gary V. Deutschmann, Sr., Sep 14, 2004
    #9
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