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Where exactly does one record security deposit? This is related to rental property. I am wondering if I should have another prepaid deposit account like prepaid rent.

If you want to record a security deposit that a tenant gave you, you should open up a new separate asset account and name it Security Deposit.

When at the end of the leas term you return the money, you will debit cash and credit security deposit. Remember that Security deposit is a liability so the initial entry will be a debit.

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Zahid H. Lilani

Since the Security deposit is a liablity, you have to credit it, when you receive a check. So, the entry is dr. Cash, cr. Security Deposit.
When at the end you have to pay this money back to the rentor, you have to dr. Security Deposit account and cr. Cash.