Oregon 30-Hour Real Estate Law Practice Test

On a closing statement, what is recorded in the seller's credit column and the buyer's debit column?

1. Closing costs

2. Prepaids

3. Property taxes

4. Loan fees

The correct answer is: Prepaids

In a closing statement, prepaids are recorded in the seller's credit column and the buyer's debit column because they represent amounts that have been paid in advance by the seller but are owed to the buyer for the period of ownership and use of the property that extends beyond the closing date. When a property is sold, certain expenses, such as property taxes, might be prepaid by the seller. For the purpose of ensuring that the buyer does not have to pay for these expenses which the seller covered before the sale, they are credited to the seller, reflecting that the seller has already paid for those costs. Conversely, the buyer is debited for the same amount, signifying that they will now bear the financial responsibility moving forward. This accounting method ensures that costs are fairly allocated between both parties and helps in clarifying the financial transaction during the closing process. Other options, such as closing costs or loan fees, do not typically appear in both the seller's credit and buyer's debit columns in this manner, as they are usually treated differently in the closing statement.