Definition of Security Deposit
A security deposit is often an amount paid by a tenant to a landlord to hold until the tenant moves. The amount of the security deposit is refundable to the tenant, if the rental unit remains in its present condition.
Since the security deposit is refundable (and the tenant intends to comply with the specified conditions) the tenant that paid the security deposit will report the amount as an asset. If the tenant intends to occupy the rental unit for more than one year, the security deposit should be reported as a long-term asset (or noncurrent asset) under the balance sheet classification “Other assets”.
The landlord that receives and holds the security deposit should report the amount as a liability.
Example of a Security Deposit
A company agrees to rent office space and intends to occupy the space for 3 years. The landlord requires a security deposit of $1,000. The company debits the long-term asset Security Deposit for $1,000 and credits Cash for $1,000.
The landlord debits Cash for $1,000 and credits a liability account such as Refundable Security Deposits for $1,000.
