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How to explain a rent deposit paid to a landlord

This article describes how to explain a refundable deposit paid out of a business bank account to a landlord for rent. It also describes how to explain the money paid into your bank account when the deposit is refunded by the landlord.

If you paid a refundable deposit to your landlord when you moved into new office premises, for example, you should follow the steps below to explain the bank transaction and post journal entries to record the amount owed to the business on your balance sheet.

Please note that you’ll need full (level 8) access to your FreeAgent account to follow the steps below.

For information on how to explain a rent deposit received from a tenant, please see this article.

Explaining the money paid out of the business bank account

Once the relevant bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you will need to explain it using the appropriate ‘Type’ and ‘Category’ as detailed below.

Navigate to the ‘Banking’ tab at the top of the screen and select ‘Bank Accounts’ from the drop-down menu.

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Choose the relevant bank account from the list.

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Select the transaction that you would like to explain.

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If you don't have a VAT bill for the deposit, select ‘Payment’ from the transaction ‘Type’ drop-down menu. If you do have a VAT bill, select 'Bill Payment' as the transaction 'Type' and follow the steps in this article (option 1) instead.

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Select 'Exempt' from the ‘Including [X] VAT’ drop-down menu. 

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Select ‘Rent’ from the ‘Category’ drop-down menu.

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Select ‘Explain Transaction’ to complete the process.

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A record of the bank transaction being explained will appear in your Audit Trail report.

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Posting journal entries to record the amount owed to your business on your balance sheet

After you’ve explained the bank transaction, you’ll need to post the following journal entries dated the same date as the bank transaction for the amount of the rent deposit excluding VAT:

  • Credit account ‘251 - Rent’
  • Debit account ‘682 - Other Debtors’

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This will record the rent deposit on your balance sheet as money owed back to your business.

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A record of journal entries being created will also appear in your Audit Trail report.

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Explaining the money paid into your bank account

When you receive the money back from the landlord at the end of the tenancy agreement, you will need to explain it using the appropriate ‘Type’ and ‘Category’ as detailed below once the relevant bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement.

Navigate to the relevant transaction and select ‘Other Money In’ from the transaction ‘Type’ drop-down menu.

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Select ‘Receipt from Other Debtor’ from the ‘Category’ drop-down menu.

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Select ‘Explain Transaction’ to complete the process.

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This will net off against the amount entered to account ‘682 - Other Debtors’ from the journal entries and remove the asset from your balance sheet.

A record of the bank transaction being explained will also appear in your Audit Trail report.

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