Definition of Security Deposit
A security deposit often refers to 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 condition of the rental unit remains as it was agreed upon.
Since the security deposit is refundable (and the tenant intends to comply with the specified conditions) the company paying the security deposit will report the amount paid as an asset. If the company 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 company or landlord receiving the security deposit will 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 will debit the long-term asset Security Deposit for $1,000 and will credit Cash.