Explaining a rental deposit repaid to a tenant
This article describes how to explain a refundable rental deposit paid out of your bank account to a tenant if you have an unincorporated landlord account in FreeAgent.
If you have a sole trader, partnership or limited company account and you return a refundable rental deposit to a tenant, find out how to explain the money paid back to the tenant.
The way to deal with the return of a refundable deposit to one of your tenants depends on whether the deposit was held by the landlord or a Tenancy Deposit Scheme.
If you've received a refundable deposit from one of your tenants, find out how to explain a rental deposit received from a tenant.
Returning a deposit held by the landlord
If the deposit was held by the landlord, once the tenancy has ended and the deposit payment is paid back to the tenant, select ‘Rental Deposits Out’ as the transaction ‘Type’ and ‘Refund of Rental Deposit Received’ as the ‘Category’.
Select ‘Explain transaction’ to complete the process.
Deposit payment partially returned to tenant
If some of the deposit is retained for repairs, once you’ve explained the money returned to the tenant, you’ll also need to create the following journal entries to move the balance that is left over in the Rental Deposits Received category to the relevant cost category:
- Debit code ‘800 - Rental Deposits Received’
- Credit the relevant cost category that the cost of the repairs were explained to
If you’re unsure which journals are required, please ask your accountant.
Returning a deposit held by a Tenancy Deposit Scheme
If the deposit was held by a Tenancy Deposit Scheme, the steps to take depend on whether the deposit is being returned to the tenant from the landlord or directly from the deposit scheme.
Deposit returned to tenant from the landlord
If the deposit scheme returns the money to the landlord, you’ll need to explain the money paid into your bank account from the scheme and then the money paid out to the tenant.
Explaining the money paid into your bank account
Once you’ve received a deposit back from the Tenancy Deposit Scheme, select ‘Rental Deposits In’ from the ‘Type’ drop-down menu and ‘Receipt under Rental Deposit Scheme’ from the ‘Category’ drop-down menu.
Select ‘Explain transaction’ to complete the process.
Explaining the money paid out of your bank account
Once the money is paid out of your business bank account to the tenant, select ‘Rental Deposits Out’ from the ‘Type’ drop-down menu and ‘Refund of Rental Deposit Received’ from the ‘Category’ drop-down menu.
Select ‘Explain transaction’ to complete the process.
Deposit payment partially returned to tenant
If some of the deposit is retained for repairs, once you’ve explained the money returned to the tenant, you’ll also need to create the following journal entries to remove the retained part of the deposit from the Balance Sheet:
- Debit code ‘800 - Rental Deposits Received’
- Credit the relevant cost category that the cost of the repairs were explained to
If you’re unsure which journals are required, please ask your accountant.
Deposit returned to tenant from the deposit scheme
If the deposit scheme returns the money to the tenant directly, there will be no cash coming into the business bank account. Therefore, to keep your business records accurate, you’ll need to enter two manual bank transactions to remove the deposits recorded under the Rental Deposits Received and Rental Deposits Scheme, from the Balance Sheet.
For the first manual bank transaction, select ‘Rental Deposits In’ from the ‘Type’ drop-down menu and ‘Receipt under Rental Deposit Scheme’ from the ‘Category’ drop-down menu.
Select ‘Create and Add Another’ at the bottom of the screen.
For the second manual bank transaction, select ‘Rental Deposits Out’ from the ‘Type’ drop-down menu and ‘Refund of Rental Deposit Received’ from the ‘Category’ drop-down menu.
Select ‘Create and Finish’ at the bottom of the screen to complete the process.
Deposit payment partially returned to tenant
If some of the deposit is retained for repairs, for example £500, you’ll need to explain the money refunded from the deposit scheme and then enter two manual bank transactions (for the full amount of the deposit) to clear the deposit from the Balance Sheet.
When explaining the money refunded from the deposit scheme in the business bank account, select ‘Refund’ from the ‘Type’ drop-down menu and ‘Property Repairs’ from the ‘Category’ drop-down menu.
For the first manual bank transaction, select ‘Rental Deposits In’ from the ‘Type’ drop-down menu and ‘Receipt under Rental Deposit Scheme’ from the ‘Category’ drop-down menu. Enter the full amount of the deposit in the ‘Value’ field.
For the second manual bank transaction, select ‘Rental Deposits Out’ from the ‘Type’ drop-down menu and ‘Refund of Rental Deposit Received’ from the ‘Category’ drop-down menu. Enter the full amount of the deposit in the ‘Value’ field.