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Security v/s earnest deposit

Amit Kumar Verma (CA Final CS Professional) (501 Points)

12 January 2012

Hi friends..

Can u please tell me the difference between Security Deposit and Earnest Deposit..

Thanks..

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5 Replies

Saurabh Malpani (CA Final) (514 Points)
Replied 12 January 2012

An earnest payment is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.

whereas A monetary deposit given to a lender, seller or landlord as proof of intent. is security money

Kolluru Krishna Murty (Partner) (315 Points)
Replied 23 January 2012

Both Earnest money and Security Deposit are Current assets for the pupose of Balance Sheet ,but Security Deposit may become Non-current.

Earnest Money is initial amount paid to the prospective buyer towards giving quote for any work/service/supply,something like application money.On award of contract/service/purchase order this may be converted into Security Deposit.

Security Deposit is the amount paid to the prospective buyer towards due performance of contractual obligations as per the terms of contract.Some times this may be given in the form of Bank Guarentee also as per contractual terms.In the works contracts this is also recovered from the progressive bills in proportion to work completed.

Earnest Money is paid or adjusted on awarding contract or other-wise,whereas Security Deposit is paid or adjusted on due completion of contractual obligations.

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