Explain how security deposits are accounted for both the landlord and the tenant

The landlord and the tenant have different accounting treatments for security deposits. The tenant would report the amount as an asset on the balance sheet. If the tenant intends to occupy the rental unit for more than one year, the security deposit should be reported as a long-term asset (or non-current asset) under "Other assets" on the balance sheet. The landlord that receives and holds the security deposit would report the amount as a liability (current or long-term depending on the length of rental).

When the tenant moves out, the security deposit is either returned to the tenant, reversing the above transactions, or, if the landlord withholds it for damages, the tenant would write it off as an expense and the landlord would record it as income in the period the tenant moves out.