Seller paid closing costs into escrow
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)
So, from my "bank account" $20,000 is withdrawn and put to the Asset:House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?
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