Closing Statements and Prorations: Who Pays What?

Debits, credits, and the core closing map

A closing statement is an accounting of money charged to and credited to each party. The key is to stop thinking of debit as always bad and credit as always good. Instead, ask whether the item increases or decreases the amount that party must bring to or receive from closing.

The purchase price is normally a buyer debit because it is the buyer's cost, and a seller credit because it is the seller's amount received. The buyer's earnest-money deposit and new mortgage loan are buyer credits because they reduce the additional cash the buyer must bring. The seller's existing mortgage payoff, brokerage fee, and seller-paid closing expenses are seller debits because they reduce the seller's proceeds. A new loan is not a seller credit; it is money supplied on the buyer's side of the transaction.

A double-entry item appears as a debit to one party and an equal credit to the other. A single-entry item affects only one party. For example, the buyer's new loan is a buyer credit but is not normally entered as a seller debit.

• Debit: an amount charged to a party; credit: an amount given to or already paid by a party
• Purchase price: buyer debit; seller credit
• Earnest-money deposit and new mortgage: buyer credits
• Seller's mortgage payoff: seller debit
• Brokerage fee: normally a debit to the party who agreed to pay it
• Recording the buyer's new mortgage: normally buyer debit

Accrued versus prepaid items, with a worked proration

An accrued item is owed but has not yet been paid. Florida property taxes are a common example because the annual bill generally becomes due November 1 and delinquent April 1 of the following year. If closing occurs before the current year's bill has been paid, the buyer may later pay the whole bill, so the seller is debited and the buyer is credited for the seller's share.

A prepaid item has already been paid for a period extending beyond closing, such as an annual association fee the seller prepaid; the buyer is debited and the seller credited for the buyer's share. The contract or question controls who owns the day of closing, and when the buyer owns it, the seller is charged through the day before closing.

Annual taxes of $4,380 are unpaid, closing is September 15 in a non-leap year, the buyer owns the closing day, and a 365-day year is used. The daily rate is $4,380 ÷ 365 = $12. The seller owned January 1 through September 14, which is 257 days, so 257 × $12 = $3,084. The seller is debited and the buyer credited $3,084.

• Accrued, unpaid expense: usually seller debit and buyer credit for the seller's share
• Seller-prepaid expense: usually buyer debit and seller credit for the buyer's share
• Use the dates and day-count method stated in the question
• Daily tax: $12; seller's days: 257
• Seller share: $3,084
• Entry: seller debit, buyer credit

Buyer cash to close and seller net proceeds

Assume a $360,000 purchase. The buyer has a $10,000 deposit, receives a $288,000 new loan, has $5,400 of buyer closing costs, and receives the $3,084 tax-proration credit from the worked example.

Buyer debits are $360,000 + $5,400 = $365,400. Buyer credits are $10,000 + $288,000 + $3,084 = $301,084. Buyer cash to close is $365,400 - $301,084 = $64,316.

Now assume the seller pays a $21,600 brokerage fee and has a $175,000 mortgage payoff. Seller credits are $360,000. Seller debits are $21,600 + $175,000 + $3,084 = $199,684. Seller net proceeds are $360,000 - $199,684 = $160,316.

• Buyer cash to close: $64,316
• Seller net proceeds: $160,316
• Deposit and new loan reduce buyer cash required
• Mortgage payoff and brokerage fee reduce seller proceeds

Loan closing documents and recordkeeping

For many consumer mortgage loans, the lender must provide the borrower a Closing Disclosure at least three business days before consummation. The form summarizes the loan terms, projected payments, and closing costs. This federal disclosure is not the same thing as memorizing who receives each debit and credit on an exam problem.

Florida law requires a broker to preserve at least one legible copy of brokerage business records for at least five years. If a brokerage record is evidence in litigation, it must be retained for at least two years after the civil action or appeal ends, but never for less than the basic five-year period.

A sales associate should follow the employing broker's closing and recordkeeping procedures. The sales associate does not independently hold transaction records or disburse closing money outside the employing broker's supervision.

• Closing Disclosure: generally at least three business days before consummation
• Brokerage records: at least five years
• Litigation extension: at least two years after final conclusion, never less than five years total
• Sales associate operates under the employing broker

First 100-question readiness checkpoint

This is the first readiness check, not a claim that the first ten lessons have covered all nineteen official content areas. Schedule one uninterrupted 3.5-hour block and complete a 100-question Florida sales-associate practice examination that reports scores by content area. Use closed-book conditions, matching the official examination format.

Score it in two ways: overall percentage and accuracy within each official content area. A raw 75% is the official passing benchmark, but a single practice score at 75% is fragile. Use 80% as the minimum readiness target and 85% or better on two different timed 100-question tests as the stronger go-to-exam signal.

After grading, create an error log with four columns: question topic, why the chosen answer was wrong, the correct rule or formula, and the date retested. Prioritize the heaviest weak areas first: Brokerage Activities and Procedures and Contracts are each 12%, followed by Residential Mortgages at 9%, then Property Rights and Appraisal at 8% each.

• Below 70%: rebuild foundations before scheduling the state exam
• 70%-79%: improving, but target the two weakest high-weight areas
• 80%-84%: near-ready; retest under full timed conditions
• 85% or higher twice: strong readiness signal, not a guarantee
• Do not memorize answer letters; explain every missed rule aloud

Fast exam traps

Do not treat every debit as a loss or every credit as income. Do not credit the seller for the buyer's new loan. Do not forget that an earnest-money deposit is already-paid buyer money. For prorations, identify whether the expense is accrued or prepaid, who owns the day of closing, and whether the question uses a 360-day statutory year, a 365-day calendar year, or actual days.

• Classify the party before the entry
• Follow the question's day-count convention
• Determine accrued or prepaid before choosing debit and credit
• Calculate buyer and seller totals separately