Seller paid closing costs into escrow
Dawning Sky
the.dawning.sky at gmail.com
Tue Apr 29 13:56:01 EDT 2008
Jason Ahrens wrote:
> 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 So, from my "bank account" $20,000 is withdrawn and put to the Asset:House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.
>
It works like this:
Debit Credit
Asset:Fixed Asset:House 198,000.00
Asset:Current Asset:Escrow 2,000.00
Asset:Current Asset:Savings 20,000.00
Liabilities:Mortgage 180,000.00
You may be unwilling to accept the fact that your house price is
actually $198,000.00 if the seller gives $2,000.00 in cash while the
contract price is $200,000.00. But that's just the way it is. Of
course, the market value of your house can be a totally different thing.
Then you'll need to deal with the unrealized gain etc. But that's for
another transaction.
DS
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