A prorated expense on the settlement statement is

A prorated expense on the settlement statement is

• A. A debit to one party and a credit to the other
• B. A debit to both parties
• C. A credit to both parties
• D. An asset to the buyer

Answer: (A)

Proration splits ongoing property expenses between the buyer and seller based on the closing date, so each party pays for the part of the period they actually own. On the settlement statement, the prorated amount shows up as a debit to the party who will owe the expense for the post-closing period and as a credit to the other party who is owed reimbursement for the portion they prepaid. For example, if the annual property tax is $2,400 and closing happens halfway through the year, the buyer would be debited for $1,200 (they owe for the period after closing) and the seller would be credited $1,200 (they’re reimbursed for the portion they prepaid). This reflects the transfer of the obligation from one party to the other at closing.

Proration splits ongoing property expenses between the buyer and seller based on the closing date, so each party pays for the part of the period they actually own. On the settlement statement, the prorated amount shows up as a debit to the party who will owe the expense for the post-closing period and as a credit to the other party who is owed reimbursement for the portion they prepaid. For example, if the annual property tax is $2,400 and closing happens halfway through the year, the buyer would be debited for $1,200 (they owe for the period after closing) and the seller would be credited $1,200 (they’re reimbursed for the portion they prepaid). This reflects the transfer of the obligation from one party to the other at closing.