Seller paid closing costs into escrow

[Dawning Sky]

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 So, from my "bank account" $20,000 is withdrawn and put to the Asset:House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