The First Accounting Error: Treating It as Revenue
A deposit is money paid to you that is not yours. It is a standing liability until returned or justifiably deducted. Recording it as revenue inflates your numbers, hides an obligation, and creates disputes at move-out.
When Can You Deduct?
Deposits cover what exceeds normal use: misuse damage, unpaid rent, unpaid tenant utilities, or missing contents in furnished units. They do not cover natural aging, age-related failures, or renovations the owner wants before the next lease.
Documentation: Deduction vs Argument
- Dated handover condition photos in the unit record
- A signed contents list for furnished units
- Damage photos at move-out from the same angles
- An actual repair invoice, not a personal estimate
- A written itemized deduction statement given to the tenant
The fourth item matters most. Deductions based on estimates get contested; deductions backed by real invoices rarely do.
What About Forgotten Deposits?
A tenant left without claiming their deposit. The correct treatment is to keep it recorded as a standing liability with tenant details and document contact attempts. The obligation does not lapse just because nobody claimed it.
A Practice That Prevents Disputes
At signing, give the tenant a copy of the condition photos and contents list, signed by both parties. Two minutes at the start saves hours of argument at the end.