A rent deposit, sometimes referred to as a tenancy deposit or security deposit, is an amount paid by a business to a landlord to be used in the event that the business fails to pay the rent or damages the property. The business needs to post a rent deposit accounting journal entry recording the amount paid as an asset as it is refundable when the property is vacated.
If the deposit is refundable within the a year, then the amount will be shown as a current asset, if not, then it should be shown as a long-term asset in the balance sheet.
Rent Deposit Accounting Journal Entry Example
Suppose a business rents premises and has to pay a rent deposit of 1,000 to the landlord. As the amount will eventually be refunded by the landlord when the business vacates the property, it is not regarded as an expense of the business and is instead recorded as an asset in the balance sheet.
The bookkeeping records will show the following rent deposit accounting journal entry.
The rent deposit is an asset account representing an amount recoverable from the landlord at a future date.
The Accounting Equation
The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.
For this transaction the accounting equation is shown in the following table.
|– Cash + Deposit||=||None||+||None|
|– 1,000 + 1,000||=||0||+||0|
In this case one balance sheet asset (cash), has been decreased by 1,000, and replaced by an increase in another balance sheet asset (rent deposit).
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