I am recording the purchase of a rental property from the HUD-1 settlement sheet. The security deposits held by the previous owner will be a credit to the liability account "Tenant Deposits" in my journal entry to record the settlement. When I actually receive the cash to fund the Security escrow account, what is the entry? Debit Cash, Credit ? I do not want to credit a liability account because it seems like that would be entering the liabilty twice. Suggestions?

I'm a little confused over how this actually happened. I'll tell you right off I'm not familiar with rental properties, but sometimes accounting is accounting. Someone else may be able to answer this better, but if you could explain a couple of things, I still might be able to help you.

One, when you say you'll receive the cash to "fund" the security escrow account, do you mean the deposits? i.e. these deposits that are owed back to tenants are the "escrow accounts"? If I'm interpreting that correctly, I'm suspecting something in the initial entry may have been incorrect.

Just to over-simplify, let's say there were $100,000 in assets and $10,000 in liabilities. Then you'd pay $90,000, the net worth. i.e. the liability is built into it because you didn't pay $100,000. If instead you paid the entire $100,000, but are now receiving back the $10,000 -- seems like the extra $10,000 paid would be a receivable from the prior owners.