Seller paid closing costs into escrow

Jason Ahrens jason at cougarcorp.net
Tue Apr 29 12:05:18 EDT 2008


Anthony said the following on 28/04/2008 3:40 PM:
> Where are you putting the cost of the home, into an asset account?
> Shouldn't the money paid by the seller and put into your escrow
> account reduce the purchase price of the asset?  If I'm reading this
> correctly I don't think the money should be put on your balance sheet
> at all until the deal is closed, at which point it would reduce the
> cost of the home.  But I could be misunderstanding you.
>   

Well, that gets tricker. Here's why (simplified example):
 House cost: $200,000
Downpayment: 10% ($20,000k)
Mortgage: $180,000

So, from my "bank account" $20,000 is withdrawn and put to the Asset:House
 From and Mortgage liability, $180,000 is taken, and put to Asset:House

These are both "Fixed items" that have to be recorded as is, or the 
books don't balance. So this money the "seller" is paying into escrow 
for taxes can't really "reduce" the price of the house.

This is why I created a separate escrow account, I put money into it 
every month for taxes and insurance. There's a balance carried there as 
well (i.e.: it never hits zero), so I can't just figure out percentages 
to put into a tax and insurance liability every month. It seems the only 
reasonable thing to do is keep track of the escrow account like any 
other "bank" account.

But that's what leaves me with the problem as "where does this seller 
given money originate from" in accounting terms?

Jason


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