A security deposit needs to be paid in case of an operating lease and represents an amount of money to be used as security for proper and due performance of all lessee's obligations under the lease agreement. No invoice is issued for the security deposit. Once the agreement has expired and the lessee has performed all its obligations under the agreement, the security deposit is repaid to the lessee.
How is it accounted for?
If the lessee is subject to corporate income tax, it will disclose the security deposit paid in its balance sheet as a noncurrent receivable.
