What entry reflects closing costs in a real estate settlement?

What entry reflects closing costs in a real estate settlement?

• A. Credit to Buyer & Debit to Seller
• B. Debit to Buyer & Credit to Seller
• C. Credit to Seller & Debit to Buyer
• D. Debit to Seller & Credit to Buyer

Answer: (B)

Closing costs are fees the buyer pays at closing to obtain the loan and complete the sale. In the settlement ledger, this outflow is shown as a debit against the buyer because it increases the buyer’s obligations at closing. The corresponding credit is shown to the seller to balance the transaction on the settlement statement, since those funds are being disbursed through the closing process to pay the various providers (lenders, title company, etc.) rather than increasing the seller’s proceeds. In short, buyer pays the costs, so the entry is a debit to the buyer and a credit to the seller.

Closing costs are fees the buyer pays at closing to obtain the loan and complete the sale. In the settlement ledger, this outflow is shown as a debit against the buyer because it increases the buyer’s obligations at closing. The corresponding credit is shown to the seller to balance the transaction on the settlement statement, since those funds are being disbursed through the closing process to pay the various providers (lenders, title company, etc.) rather than increasing the seller’s proceeds. In short, buyer pays the costs, so the entry is a debit to the buyer and a credit to the seller.