Three Ledgers, One Number

Your trust bank balance says $192,340. The general ledger, however, says $186,400. Meanwhile the tenant subledger says something else again, and nobody can explain the gap. Then the state audit request lands.

Here is the rule that fixes it. In short, security deposit accounting treats every deposit as money you hold for someone else, never income, until a written claim turns part of it into revenue you earned. As a result, the proof is a monthly three-way tie-out: trust bank equals general ledger equals the sum of the tenant subledger.

This article is accounting guidance, not legal advice. Statutes and administrative rules change, and requirements differ by state and license type. Confirm your obligations with your attorney and your state real estate commission.

Why Generic Bookkeeping Breaks Here

A deposit is the only money in your shop that sits on three ledgers at once. However, most bookkeepers can tie out a bank account; few have kept a per-tenant subledger that must match that bank to the penny, every month, for years. For instance, the break shows up four ways: deposits booked to rent income, deposits landing in the operating account because that is where the ACH pointed, one lump “Security Deposits” balance with no tenant detail, and move-out claims that clear the subledger while the ledger keeps the money forever. In a trust setting, moreover, each is also risk, because the funds belong to the resident until you earn them. Florida law is blunt: the landlord shall not commingle or make use of the money “until such moneys are actually due the landlord.”

Six Questions That Expose a Broken File

1. Does the deposit bank account hold deposit money only?
2. Can you print a tenant-level deposit balance as of last month end?
3. Does that total match the ledger to the penny?
4. Has any repair vendor ever been paid from the trust account?
5. Did any deposit ever hit a revenue account?
6. Is every monthly tie-out signed and dated?

A “no” on any of the six is not fatal. It just tells you where the cleanup starts.

The Six Journal Entries

Pay the vendor from operating cash in entry six, then book the recovery through entry three. Paying a repair straight from the trust account mixes resident money with an operating bill, and that is the first thing a reviewer looks for. A deposit applied to a final month of rent counts in the month the resident actually lives in the unit, not the day you move it.

The Three-Way Tie-Out, Every Month

Freeze the cutoff and pull the trust bank statement; list open refund checks and deposits in transit; print the ledger balance for Security Deposits Held on that same date; export and total the tenant subledger; compare all three legs and list each difference by tenant and dollar; post fixes in the current month, never backdated; then sign, date, and file the tie-out with the bank statement and the subledger export. Florida’s broker escrow rule requires this once monthly, reviewed, signed, and dated. It names no day of the month and no software product, so anyone who tells you Florida demands a tie-out by the tenth is quoting policy, not the rule.

State Deadlines Decide Who Keeps the Money

Florida also created a fee in lieu of a deposit that the statute says is not a security deposit, so it does not belong in your deposit liability at all. As a result, booking those fees there is a fast way to break a tie-out that used to be clean.

Software Enforces Structure, It Does Not Create It

Buildium, AppFolio, Yardi Voyager, Propertyware, and QuickBooks can all carry deposits correctly when they are set up well; still, none of them fixes a chart of accounts that was wrong on day one. Ask your system one question each month: can it print a tenant-level deposit balance as of a past date? If the report only shows today, your audit trail rests on somebody’s memory.

Frequently Asked Questions

Is a security deposit income when I receive it? No, it is a liability, because the money still belongs to the resident. It turns into income only for the part you claim at move-out under the lease and state law, in the month you write the claim.

Do I need a separate bank account for security deposits? It depends on your state and license type. Florida allows a separate non-interest account, an interest-bearing account, or a surety bond, while New York requires the funds be held in trust and never mixed with your own.

What is three-way reconciliation? It proves the trust bank balance, the ledger liability, and the sum of the tenant subledger all agree on one date. A two-way check compares only bank to ledger, so single tenant balances can drift for years without anyone seeing it.

Related reading: security deposit accounting for property managers and three-way reconciliation.