Earnest Money Deposit Bookkeeping: How to Record a Deposit Paid, Applied, Refunded or Forfeited

Is an earnest money deposit an expense?

No. An earnest money deposit is money you still own, held by someone else until the deal closes. It is an asset. Recording it as an expense understates assets and overstates costs on a deal that has not happened.

The deposit is a balance you have out in the world. It is neither cash in your account nor a property you own. A cost only appears if the deposit is lost, and then it goes on the deal that lost it.

A deposit is one line in a wholesale deal record. We build the full record step by step in the wholesaling bookkeeping guide.

How is an earnest money deposit recorded when you pay it?

As an asset, named for the deal it belongs to, on the date it leaves your account. Cash goes down, deposits held goes up. Nothing has been earned or spent yet.

On Jun 2, 2026, Demo Wholesale LLC paid a $1,000 deposit on Deal 1, 1807 Example Dr, Woodland.

The deposit account goes up by $1,000 and checking goes down by $1,000. Profit does not change.

Each deposit gets its own line, named for its deal. That habit is what makes the register at the end of this page possible.

What happens when the deal closes?

The deposit is credited on the settlement statement and clears off your books at the same time. It reduces the cash you bring to closing rather than becoming a new cost.

When you are the buyer, the deposit shows as a credit on your side of the settlement statement. For the rest of that statement, see purchase closing statement bookkeeping.

When you are the seller, as on a flip, the deposit is the buyer's money. While escrow or title holds it, your books record nothing. At closing it is part of the price the buyer pays, so the sale is recorded at the full price and the deposit needs no line of its own. If a buyer's deposit is ever paid to you because the buyer walked away, record the amount and the date on that property, and ask your CPA how it is treated. The sale side is in how to record the sale of a house flip.

Deal 1 closed as an assignment on Jul 14, 2026. Title returned the $1,000 deposit to Demo Wholesale LLC that day, in its own $1,000 wire.

The $1,000 wire clears the deposit and is not income. A second wire that day brought the assignment fee: $14,250, which is the $15,000 fee less $750 of title charges. We cover that entry in assignment fee bookkeeping.

On a double close, the deposit becomes part of the price

Deal 2, 455 Sample Ct, Rio Linda, was a double close in September 2026. Demo Wholesale LLC bought the property for $210,000: $208,000 of transactional funding plus the $2,000 deposit paid on Aug 5, 2026. Here the deposit does not come back as cash. It clears into the purchase price.

The $2,000 is part of the $210,000 cost of the property, which was sold the same day for $232,000. It reaches profit only as part of that cost.

What happens when the deposit is refunded?

The asset clears and the cash comes back. Nothing hits profit, because nothing was ever earned or lost. The deal simply ends where it started.

A refund is the payment entry in reverse. Use the date the money reaches your account, and keep the record of the refund in the deal's file.

Demo Wholesale LLC has a $2,500 deposit out on Deal 4, shown in the register below. If it were refunded, this is the entry.

What happens when an earnest money deposit is forfeited?

The asset clears and the amount becomes a cost on that deal. It is the only one of the 4 outcomes that touches profit, and it belongs to the deal that died, not to general overhead.

Deal 3, 3120 Mock Ln, Marysville, had a $1,500 deposit paid on Jun 20, 2026. The deal was cancelled on Aug 12, 2026, and the deposit was forfeited.

The cost sits on Deal 3, not in general overhead. That keeps failed deals visible: in 2026, Demo Wholesale LLC's only cancelled deal cost $1,500 in lost deposit.

The books show the amount, the date and the deal. Whether a forfeited deposit is deductible, and how, is a tax question for your CPA.

What about deals that are cancelled and go quiet?

The deposit often stays on the books because nobody closed the file. Any deposit still showing after its deal is dead is either recoverable or already lost, and it should be chased or written off deliberately.

A deposit that is neither applied, refunded nor recorded as forfeited stays on the balance sheet as an asset. Month after month, it shows money you may no longer have. Deal 3 avoided this: its file was closed the day the deal was cancelled.

The stale-deposit check, every month

1. 1List every deposit still out.
2. 2Next to each one, note the closing date in its contract and any extension in the file.
3. 3Flag every deposit whose closing date has passed.
4. 4For each flagged deposit, find out what happened. Chase it if it may come back, or record it as forfeited on its deal once you know it is lost.

The books do not decide whether a deposit comes back. That depends on the contract. The books record what happened, on the date it happened.

How do you keep track of several deposits at once?

A deposit register: one row per deposit with the deal, the date, the amount and which of the 4 states it is in. It is reviewed every month, not rebuilt at year end.

The deposit register for Demo Wholesale LLC on Sep 30, 2026.

Deposits paid in 2026: $7,000. Cleared at closing: $3,000 ($1,000 returned on Deal 1, $2,000 applied on Deal 2). Forfeited: $1,500. Still out: $2,500.

• The still-out total matches the earnest money deposit balance on the balance sheet: $2,500.
• Deal 4 passes the stale-deposit check, because its closing date is still ahead.
• If Deal 4 has not closed by Oct 30, 2026 and no extension is in the file, it is flagged at the October close.

Keeping the register current is part of monthly bookkeeping for a wholesaler.