Your liability account called “Tenant Security Deposits Held” gets debited and your checking account gets credited, meaning that money leaves your checking account (in the form of a check to the tenant) and your liability goes away. If you’re returning ALL of a tenant’s security deposit (good tenant, lucky you), the journal entry is very straightforward and is simply a reverse of the journal entry for receiving a security deposit. Journal Entry for Returning a Tenant’s Security Deposit
