Where should the Security Deposit be posted?
Security deposits that are refundable are excluded from lease accounting under ASC 842 and not entered into lease software, whereas nonrefundable deposits are treated as fixed payments included in lease payments and classification, impacting the ROU asset but not the lease liability if posted on the lease start date.
In many cases, security deposits are refundable and therefore not considered part of lease accounting under ASC 842. As a result, they are not entered into the Lease Accounting software.
If the security deposit is nonrefundable, it is treated as a fixed payment, similar to other fixed payments. In this scenario, it should be included in step 2 - Lease Payments & Classification when adding a lease. If this is done on the same date as the lease start date, it will not affect the Lease Liability but will affect the ROU (Right-of-Use) Asset.