Security Deposit being used as rent

@Jaidayna 

Is the security deposit sitting as a liability on your balance sheet or was it recorded as income when you received it?  The IRS requires security deposits used to cover the last month's rent to be reported as income when received.  But, if it's sitting as a liability on your balance sheet, create a service item called Security Deposit (if you don't have one), and under 'Income account' in the set-up, select your security deposit liability account.  Then, create a sales receipt.  Add the rent as a positive amount on line 1 and add the security deposit item you just set up as a negative amount on line 2.  That will book the last month's rent income and reduce the security deposit liability.  The amounts will offset, leaving a $0 sales receipt.

If you previously booked the security deposit as income, create a $0 sales receipt with a note that the last month's rent has been paid in full.

You've come to the right place for advice, @Jaidayna.

Yes, Rainflurry is right. However, let me provide you with a detailed step-by-step guide so we can record your tenant's last month's rent using their security deposit in QuickBooks Online (QBO).

First, let's create an account for the security deposit. To do that:

1. In Accountant View, go to the Gear icon and select Chart of Accounts.
2. Click New.
3. In the Save account under, select Other Current Liabilities.
4. Select Other Current Liabilities in the Tax form section.
5. In the Account name, enter Security Deposits.
6. Click Save.

Second, let's create a service item called Security Deposits. Here's how:

1. Go to the Gear icon and select Products and services.
2. Click New and select Services.
3. Enter the name as Security Deposits, and under Income account, select the liability account we created.
4. Enter a Sales Price/Rate and select  Save and close.

Third, create a sales receipt. Enter the rent on the first line and the security deposit on the second line as a negative amount.

You'll also want to learn how and when to give credits to customers so they can use them to reduce the balance on their invoices. You may refer to this article for that: Create and apply credit memos or delayed credits in QuickBooks Online.

Please let us know if you need further assistance with security deposits. The Community is available 24/7 to help you. Take care and have a good one.