Overview
For a property manager, properties can come and go. Whether it's because the property you managed was sold or the owners decide to go with someone else, you need a way to account for the deposits you're holding that are being transferred to the new property management company or owner.
The Steps
Step 1 - Refund the Lease Deposits on Each Lease
You need to remove the lease deposits from each lease. Do this by issuing a refund for them, even though you're not technically giving these back to the tenants.
To refund the deposits on a lease, click on Rentals > Properties on the main menu.
Find and click on the Property you will no longer be managing.
On the property's page, click the Leases tab to view all the active leases currently on the property.
Click the first Lease. Then click the Deposits tab and click the Refund Deposit button.
Issue a refund to your tenant using the account where the deposits are being held. You can set the Payment Method to Other, since you aren't actually giving the refund to the tenant. In the Description and Memo field, you can label this "Transfer to New PM Company.
Click Save to finish.
Repeat these steps for each lease on the property.
Step 2 - Create a Bank Deposit for the Refunded Lease Deposits
Next, create a new bank deposit to offset the refunds you issued to the tenants, since the tenants aren't getting those deposits back. The lease deposits are instead being transferred to the new property management company.
To create a bank deposit for those lease deposits, click Create New at the top of the main menu. Then under the Transactions section, click Bank Deposit.
On the new Bank Deposit window, for Deposit Account, select where you're currently holding deposits — for example, your Escrow account or your Operating account.
Use the Other Deposits section and fill in these fields:
Property - Select the property that originally had all the deposits.
Account - Select Security Deposit Liability here.
Description - You can label this Transfer to New PM Company.
Amount - Enter the amount of the original deposit
Add Memo - You can label this Transfer to New PM Company.
You can disregard the other fields as they won’t be needed.
Click Save to complete this step.
Step 3 - Add the New Property Management Company as a Vendor
Create a new vendor for the property management company you're transferring the lease deposits to. Click the + Create New button in the top left corner, then select Vendors under the People section.
Step 4 - Create an Expense to Transfer the Lease Deposits to the New Property Management Company
The next step is to create a new expense to transfer the lease deposits to the new property management company. Click Create New at the top of the main menu. Then under the Transactions section, click Expense.
On the New Expense window, fill out these fields:
Select Payee: Select the new property management company.
Pay From Account: Select the bank account the deposit is being held in.
Payment Method: Select the method you will be using to give the funds to the new property management company.
Category: Use liability > security deposit.
Property: Choose the property associated with that deposit.
Memo: You can enter this as "Transfer to New PM Company."
Amount: Enter the amount of the transfer.
Click Save to complete the process.
When you're done, the total liability for the property is reduced by the amount transferred to the new property management company. Repeat the process for each lease on the property with deposits that need to be transferred. Eventually, the balance should reach $0 — confirm this by checking your Balance Sheet.
When you reconcile your bank account, include both the refund and other transactions in your bank reconciliation. Once the reconciliation is complete, leave a note in case of any future audits.
Disclaimer
The information provided is not offered by a licensed accountant, should not be considered accounting, financial, or legal advice, and is provided (and intended) for general informational purposes only. Do not rely on the information provided; rather, please verify applicable accounting laws and regulations independently. This information should not be considered a substitute for professional advice and does not offer Generally Accepted Accounting Principles (GAAP). The author and publisher are not liable for any damages or losses resulting from reliance on this information.