If a landlord holds a security deposit for a rental unit, how is it typically recorded in a transaction?

In a real estate transaction involving a rental agreement, a security deposit is money that a tenant provides to the landlord as a form of protection against potential damage to the property or unpaid rent. When the landlord accepts the security deposit, it is essentially a liability for the landlord because they are required to return that money to the tenant at the end of the lease, provided that the terms of the lease are met.

Recording the security deposit as a debit to the landlord reflects this immediate increase in the landlord’s liabilities. The landlord now has a responsibility to keep the deposit secure and return it when the lease concludes under the agreed conditions. This accounting practice indicates that the landlord has received funds that do not belong to them outright but are held on behalf of the tenant.

The other options do not accurately represent the nature of the security deposit in this context. A credit to the landlord would imply that the landlord has earned income or received funds that they can claim as their own, which is not the case with a security deposit. Similarly, debiting or crediting the tenant doesn’t fit the situation since the transaction primarily affects the landlord's accounting records.