Accounting for tenancy deposits

Tenancy deposits and company accounts

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Hi all,

I am struggling to understand the correct way of handling tenancy deposits in a company's accounts. When a tenant pays the company a deposit, this is typically logged with a tenancy deposit protection using a custodial scheme (in our case). This means that the company no longer has anything to do with securing the deposit. At the end of the tenancy, the tenant/company would request for this deposit to be paid back, however, the deposit will be paid direct to the tenant (less any deductions), and as such will not hit the company's accounts. 

I read conflicting posts where users have said that the company needs to maintain a creditor/debtor ledger and show all the deposits on the balance sheet. However if the deposit is not going to hit the company's accounts again, why do we need to do this?

I assume that once the deposit has left the company's account, this will No longer be classified as "creditors" in the bal sheet.

PS: how do we "explain" deposit receipts and payments to the DPS correctly on FreeAgent?

Cheers,

Mo

Replies (5)

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By coolmanwithbeard
03rd May 2016 23:56

It seem to me regardless of where the money is stored the landlord is responsible for storing it and either repaying some or all of it to the tenant at a future point. So I would record a liability to the tenant and a matching asset which is the scheme holding the deposit. The fact that the landlord cannot get his mits on it does not change the fact he owes it back to the tenant and has organised its safe keeping.

Thanks (1)
Replying to coolmanwithbeard:
By johngroganjga
04th May 2016 07:35

I disagree. Even where the landlord is holding the money in his own client account it is not his money, and does not meet the definition of an asset to be shown on the balance sheet. Even more so when the money is being held by a third party (the DPS) does the landlord not have an asset in his books.

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Replying to johngroganjga:
By coolmanwithbeard
05th May 2016 09:08

I am happy to be wrong but surely there would be some recognition in the accounts of the amounts held by a landlord whether in his own bank accounts or that a scheme. At the very least he must be holding the funds on trust as he is responsible for them and needs to be able to pass some or all of them back to the tenant at some future date. If there is no information the reader of the accounts would not know whether he was compliant with the law or had just spent them.

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Replying to coolmanwithbeard:
By johngroganjga
05th May 2016 11:08

Perhaps it would be desirable for there to be a requirement for a company's accounts to disclose not only what it has done with its own assets but also how it has looked after the assets of other persons entrusted to it for safekeeping. But the point is that there isn't, and there never has been in any time that I can remember, and I suspect that that is not likely to change any time soon.

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By imranhafeez
18th Aug 2021 20:44

mindful of the discussion above, I am of the opinion that a "note" in the financial statements should be enough to reflect the transaction. When tenancy ends, the Deposit Scheme contacts landlord for their acceptance to release full funds. Landlord can at that point raise dispute and ask the scheme to hold some or all of the funds. This stipulates that in future date this arrangement can be an end of tenancy expense offset.

End of the day, there is a point in taking deposit and that is for landlord to cover damages for tenant's reckless behaviour.

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