Real estate closing math

Debits and credits: keep buyer and seller separate

A debit charges a party; a credit gives that party an allowance, funding or an amount due. Buyer debits increase cash needed, while buyer credits reduce it. Seller credits increase proceeds, while seller debits reduce them. Name the party first, post each amount once, then calculate buyer cash and seller net separately.

Last reviewed: October 23, 2026

Which items are debits and which are credits?

Buyer cash needed = buyer debits minus buyer credits and funding.
Seller net = seller credits minus seller debits.

Conventional entries for a simplified purchase, subject to the stated facts
Item	Buyer	Seller
Purchase price	Debit	Credit
Earnest money already paid and applied	Credit	No automatic debit if still held in escrow
New buyer loan proceeds	Credit or funding source	No automatic debit
Seller's existing mortgage payoff	No ordinary entry	Debit
Brokerage charge paid by seller under the facts	No ordinary entry	Debit
General seller credit to buyer	Credit	Debit
Unpaid seller-period tax that buyer will pay later	Credit	Debit
Buyer reimburses seller for a prepaid buyer-period benefit	Debit	Credit
Buyer-paid recording or other service charge	Debit	No automatic credit
Lender credit for buyer costs	Credit or reduction of costs, counted once	No seller debit

These labels describe a closing worksheet. They do not replace general accounting rules, and a credit is not always free money: an applied deposit was paid earlier, while loan proceeds create debt.

In the June 24, 2026 PSI outline, national XI.A.1-XI.A.3 covers seller net, buyer funds and prorations. The whole Real Estate Calculations area is 7% of the 100 scored national broker questions, not seven questions on debits and credits.

How do both ledgers work in the same closing?

Assume a $360,000 sale. The buyer's $288,000 loan is fully available, and an $8,000 deposit remains in escrow to be applied at closing. The seller gives a $4,000 general buyer credit and a $3,250 credit for unpaid seller-period taxes the buyer will pay later.

Buyer costs are $9,000. Seller obligations are a $205,000 payoff, a stated $18,000 brokerage charge and $7,000 other seller costs. All costs are payable at this closing; the figures do not overlap. No money has been paid to the seller earlier. The fee is a supplied example amount, not a standard or required commission.

1. Calculate the buyer's remaining cash

Worked buyer ledger: debits less credits and funding
Buyer item	Amount and treatment
Price	Debit $360,000
Buyer costs	Debit $9,000
New loan	Credit/funding $288,000
Applied deposit	Credit $8,000
General seller credit	Credit $4,000
Seller-period tax credit	Credit $3,250
Totals	Debits $369,000; credits/funding $303,250

$369,000 − $303,250 = $65,750 buyer cash still needed.

A second route checks the answer: $360,000 − $288,000 = $72,000 of price not financed. Then $72,000 + $9,000 − $8,000 − $4,000 − $3,250 = $65,750. The deposit is part of the buyer's earlier contribution, so it reduces cash still due. It is not added to the down payment a second time.

2. Calculate the seller's net

Worked seller ledger: credits less seller debits
Seller item	Amount and treatment
Price	Credit $360,000
Existing mortgage payoff	Debit $205,000
Stated brokerage charge	Debit $18,000
Other seller costs	Debit $7,000
General buyer credit	Debit $4,000
Seller-period tax credit	Debit $3,250
Totals	Credits $360,000; debits $237,250

$360,000 − $237,250 = $122,750 seller net. The buyer's new loan and applied deposit help fund the transaction; they are not extra charges against the seller's net.

3. Check where the settlement money goes

Money available: $65,750 new buyer cash + $288,000 loan + $8,000 escrowed deposit = $361,750.

Money distributed: $122,750 seller net + $205,000 payoff + $18,000 brokerage charge + $7,000 seller costs + $9,000 buyer costs = $361,750.

The general seller credit and tax credit are adjustments between the parties, not two more payments to add to the disbursement total. That is why the buyer-seller columns alone do not need a matching entry for every outside payment.

How do you avoid counting the same money twice?

Choose one buyer setup. Start with full price and subtract the loan, or start with the price portion not financed. Do not start with the down payment and subtract the same loan again.

Keep a general credit separate from a specific paid fee. If the seller pays one $1,500 buyer fee, count that payment once. You can remove it from the buyer's payable costs or reflect the payment against a gross-cost worksheet, but not do both. A separate general seller credit belongs only if the facts actually provide one.

Regulation Z, Section 1026.38(j)(2)(v) and its official interpretation, distinguishes a general seller credit from payment of a specific cost in the seller-paid column. Lender credits must also be counted once. A seller-paid charge or lender credit may already be reflected in the closing-cost total you are given.

Separate a total fee from its internal split. If a stated seller brokerage charge is divided between firms, the split alone is not another seller cost. Use the actual agreement and the party charged in the problem.

What if the seller received the deposit earlier?

Change only the worked example's deposit handling: the $8,000 was already paid to the seller and is properly applied to the price, rather than remaining in escrow. The buyer still gets the $8,000 credit. The seller has already received $8,000 of the calculated $122,750 net, so only $114,750 remains due to the seller at this closing.

Earlier receipt plus closing receipt is $8,000 + $114,750 = $122,750. Do not subtract the deposit from seller net when it is still in escrow, or pay the seller the same $8,000 twice when it has already been received.

A deposit used to pay a fee before closing also needs separate tracking. Under the official interpretation of Section 1026.38(j)(2)(ii), that part is shown with the cost as paid before closing rather than again as an unused deposit credit. Section 1026.38(k)(2)(ii) addresses deposits previously disbursed to the seller. The full history matters more than the word deposit alone.

Which way do prorations and shortfalls go?

Unpaid seller-period item, buyer pays later: debit seller and credit buyer. Seller prepaid the buyer's period and is owed reimbursement: debit buyer and credit seller. Decide who paid, which period benefits whom and who will pay the eventual bill before choosing the entry.

The Illinois Department of Revenue says existing-home sellers generally provide a contract-based credit for their ownership period and buyers generally pay bills due after closing. A lender's initial tax escrow is a separate buyer funding requirement. New construction may involve a later reproration agreement. This page does not supply an assumed tax multiplier, day count or closing-day allocation.

Preserve a negative result. If seller credits are $300,000 and debits are $307,250, the result is −$7,250: a shortfall to fund or otherwise resolve, not $7,250 of proceeds or automatic debt forgiveness. A negative buyer-cash worksheet result also does not, by itself, establish permitted cash back under the loan terms.

For the actual day count, use 360-day versus actual-day proration. For additional seller calculations, use seller-net worked examples.

How does the classroom ledger relate to a Closing Disclosure?

For a covered mortgage purchase, the Closing Disclosure uses prescribed headings, cost columns and transaction summaries. On the standard purchase form, Section K shows amounts due from the borrower and L shows amounts paid already or on the borrower's behalf. Seller sections M and N distinguish amounts due to and due from the seller.

The CFPB explainer and its linked sample form help connect those labels to the two calculations. The sample is an illustration, not a current transaction or a substitute for the live regulation. Some transactions use different or separate forms; not every real estate closing uses this same combined form.

Can you post the entries and check the arithmetic?

These five questions are original study examples, not released, recalled or predicted PSI items. Work the entry or calculation before opening the answer. No practice score here certifies exam readiness.

1. The price is $320,000 and buyer costs are $8,000. The buyer has a $256,000 loan, a $6,000 applied deposit, a $3,000 general seller credit and a $1,500 seller-tax credit. All items are distinct. What cash does the buyer still need?

$61,500
$67,500
$60,000
$70,500

Show answer 1 and explanations

Answer: A. $61,500

A: $328,000 of buyer debits minus $266,500 of credits and funding equals $61,500.
B: This leaves out the $6,000 deposit that has already been paid and is being applied.
C: This subtracts the $1,500 tax credit a second time.
D: This leaves out both the applied deposit and the $3,000 general seller credit.

Change the facts: Remove only the $1,500 tax credit. Buyer cash rises to $63,000.

Check the supporting reference

2. A seller receives a $250,000 price and owes a $191,000 payoff, $12,500 agreed brokerage charge, $3,500 other costs, $4,000 general buyer credit and $2,200 tax credit to the buyer. Nothing was paid to the seller earlier. What is the seller's net?

$40,300
$41,200
$213,200
$36,800

Show answer 2 and explanations

Answer: D. $36,800

A: This fails to subtract the $3,500 other seller costs.
B: This adds the $2,200 tax adjustment to the seller instead of subtracting it.
C: This is the total seller debits, not the amount left for the seller.
D: $250,000 of seller credits minus $213,200 of seller debits equals $36,800.

Change the facts: Remove the $4,000 general seller credit. Seller net rises to $40,800, with the other charges unchanged.

Check the supporting reference

3. The seller prepaid association dues. The problem requires the buyer to reimburse $450 for the buyer's ownership period. Which entries apply?

Buyer credit and seller debit
Debit both parties $450
Buyer debit and seller credit
No entry because the dues were already paid

Show answer 3 and explanations

Answer: C. Buyer debit and seller credit

A: This reverses the stated reimbursement: the seller already paid for the buyer's period.
B: The seller is receiving reimbursement, not being charged the same amount again.
C: The buyer owes $450 and the seller is due $450.
D: Prior payment is why the buyer owes the seller for the benefit being received.

Change the facts: Instead, the $450 is unpaid seller-period tax that the buyer will pay later. Reverse the entries: seller debit and buyer credit.

Check the supporting reference

4. Buyer cash would be $18,000 before a contribution. The seller agrees to pay one $1,500 buyer fee already included in that amount, with no additional general credit. After accounting for that payment once, what cash remains?

$15,000
$16,500
$18,000
$19,500

Show answer 4 and explanations

Answer: B. $16,500

A: This subtracts the same $1,500 payment twice, as both a paid fee and another credit.
B: The seller's one payment reduces the buyer's $18,000 obligation by $1,500 once.
C: This ignores the seller's payment of a cost otherwise included in the buyer amount.
D: This adds a cost that the seller is paying for the buyer.

Change the facts: The agreement separately adds a distinct, permitted $500 general seller credit. Under those changed facts, buyer cash is $16,000.

Check the supporting reference

5. An ordinary purchase requires the seller's $180,000 mortgage to be paid from seller proceeds. The buyer is obtaining a separate new loan. How should the seller payoff be treated?

Seller debit, with no automatic buyer-side credit
Buyer credit and seller debit
Seller credit and buyer debit
No entry because the buyer has a new loan

Show answer 5 and explanations

Answer: A. Seller debit, with no automatic buyer-side credit

A: The seller's lienholder receives the payoff; it reduces seller net rather than funding the buyer.
B: This invents a buyer funding source merely because the seller's old lien is being released.
C: This reverses the payoff and charges the buyer for the seller's stated obligation.
D: The new buyer financing does not eliminate the old seller debt or its payoff.

Change the facts: If the buyer is expressly assuming a loan, the financing and entries change. Use the stated assumption facts instead of treating that transaction as this ordinary payoff example.

Check the supporting reference

Debits and credits questions answered

Is earnest money a buyer credit or a seller debit?

An already-paid deposit properly applied to the price is a buyer credit in the simplified ledger. It is not automatically a seller debit when it remains in escrow for closing. If money was disbursed to the seller before closing, account for that earlier receipt when calculating what is still due to the seller. Do not pay the seller the same part of the price twice.

Are loan proceeds a buyer credit even though the buyer owes the loan?

Yes, in this closing-cash worksheet they are a funding source that reduces cash the buyer must bring. They remain debt. Calling them a buyer credit does not make them income, a gift, a seller charge or a discount on the agreed price.

Does every debit have an opposite credit to the buyer or seller?

No. A buyer-seller reimbursement or general concession usually has opposite entries for those two parties. A mortgage payoff, lender credit or fee paid to an outside provider involves another party. A complete settlement accounting must balance, but a two-party buyer-seller grid is not a complete general ledger.

Is cash to close the same as the down payment?

No. In a simple purchase, price minus the new loan gives the price portion not financed. Cash still needed also accounts for closing costs, prepaids, initial escrows, deposits already paid and applicable credits. Use either price minus loan plus adjustments, or start with the already-calculated down payment plus adjustments. Do not subtract the loan again from the down payment.

Why does the buyer get a credit for the seller's unpaid property tax?

The buyer will pay a later bill that includes the seller's ownership period. The credit compensates the buyer for that seller share. It does not mean the tax has been paid to the county or that a lender's future-tax escrow is already funded. Calculate the period and contract-based estimate before choosing the entries.

Can I add a seller-paid fee and a general seller credit together?

Only if they are distinct contributions in the facts. A seller's payment of a specific $1,500 buyer fee must not also be counted as a second $1,500 general credit. The Closing Disclosure may show specific payments in seller-paid cost columns and a general contribution in the transaction summary. Program limits and the actual agreement still matter.

Are rent and tenant security deposits treated the same way?

No. Rent paid to the seller for a buyer-period benefit is a proration issue. A held security deposit is tied to a tenant obligation, not ordinary earned sale income. If a problem says the seller retains the deposit cash while the buyer takes over the obligation, it can require a seller debit and buyer credit. If funds are separately transferred, avoid duplicating that transfer as another allowance. Follow the stated facts and applicable law.

Choose the next calculation to practise

Use the math drill for more calculations. If you chose the wrong side, return to the debit-credit chart. If the side was right but the amount was wrong, review the underlying proration or Illinois transfer-tax calculation.

For further Illinois broker-exam practice, you can download Pass Illinois. Keep the payer, recipient and reason beside any entry you find confusing.

Sources and scope of this lesson

Reviewed October 23, 2026. The examples are simplified purchase worksheets with stated assumptions. Current disclosure rules govern covered mortgage forms; the contract, invoices, payoff statements and applicable law determine actual charges and allocations. These examples do not authorize a seller concession, set a commission, determine a tenant-deposit obligation or replace a closing agent's settlement accounting.

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