For a buyer–seller proration, debit the party who owes the adjustment and credit the party who should receive it. First work out who owes whom; then calculate the amount. A correct calculation with the buyer and seller reversed is still an incorrect answer.
Proration divides an expense or income between the seller's and buyer's periods of ownership. The examples below are original practice exercises for learning the method.
What do debit and credit mean?
- Buyer debit: increases the amount the buyer must bring to closing.
- Buyer credit: reduces the amount the buyer must bring to closing.
- Seller debit: reduces the seller's proceeds.
- Seller credit: increases the seller's proceeds.
Think of these as effects on the closing statement. A credit can be an adjustment to the final balance; it does not have to be a separate check. The CFPB Closing Disclosure explainer distinguishes expenses the seller prepaid from expenses the seller still owes.
Decide who owes whom
| Facts in the question | Amount being transferred | Entry |
|---|---|---|
| Taxes are unpaid; the buyer will pay the bill later. | Seller's share of the taxes | Debit seller; credit buyer |
| The seller collected rent for a period extending beyond closing. | Buyer's share of that collected rent | Debit seller; credit buyer |
| The buyer assumes the loan and will pay interest that includes the seller's ownership period. | Seller's accrued, unpaid interest | Debit seller; credit buyer |
| The seller already paid an expense covering part of the buyer's ownership period. | Buyer's share of that prepaid expense | Debit buyer; credit seller |
“Prepaid” alone does not tell you the entry. Rent collected by the seller is income. An expense paid by the seller is money already spent. Ask who has the money and who is entitled to it.
These distinctions appear in the CFPB's Closing Disclosure rules and official interpretations: prepaid expenses under §1026.38(j)(1), collected rent under comment 38(j)(2)(vi)-6, and unpaid expenses including assumed-loan interest under §1026.38(j)(2)(xi).
A repeatable calculation
- Label the item: expense or income; already paid or collected, or still unpaid.
- Assign the days: follow the question's instructions about who gets the closing day. Count that day once.
- Find the daily amount: divide the amount for the period by the number of days in that period. For interest, first calculate annual interest: principal × annual rate.
- Multiply by the relevant days: the days belonging to the party whose share must be transferred.
- Write both entries: name the debit party, credit party, and amount. Keep calculator precision until the final answer unless instructed otherwise.
Daily amount × relevant days = proration. Match the period: annual taxes use an annual divisor; monthly rent uses the month's divisor. TSRE's property-tax proration lesson demonstrates the daily-rate approach.
Read the day-count instructions. Actual-calendar/365, 30-day-month/360, and actual-days/360 are different methods. Do not switch between them. For a leap year, follow the stated annual divisor. If a practice problem leaves the convention unclear, check its course directions before treating one answer as uniquely correct.
Example 1: Unpaid property taxes
Given: Annual taxes are $3,650. Closing is April 14 in a non-leap year. Use actual calendar days and a 365-day year. The buyer receives the closing day and will pay the entire unpaid tax bill later.
- Seller's days: January 31 + February 28 + March 31 + April 13 = 103 days.
- Daily taxes: $3,650 ÷ 365 = $10.
- Seller's share: $10 × 103 = $1,030.
Entry: Debit seller $1,030; credit buyer $1,030. The buyer needs the seller's share because the buyer will pay the bill. Counting April 14 for the seller would incorrectly add another $10.
Example 2: Rent already collected by the seller
Given: The seller collected $1,800 for all of April. Closing is April 14, the buyer receives the closing day, and the problem uses April's 30 actual days.
Daily rent = $1,800 ÷ 30 = $60.
Buyer's days = April 14 through April 30 = 17 days.
Buyer's rent = $60 × 17 = $1,020.
Entry: Debit seller $1,020; credit buyer $1,020. The seller holds income belonging to the buyer. The remaining $780 is the seller's earned share; it is not the adjustment.
Example 3: Interest on an assumed mortgage
Given: The buyer assumes a loan with a $219,000 principal balance at 5% annual interest. The next payment will include interest for all of April, which has not yet been paid. Closing is April 14; the buyer receives that day. Use actual days and a 365-day year.
Annual interest = $219,000 × 0.05 = $10,950.
Daily interest = $10,950 ÷ 365 = $30.
Seller's April interest = $30 × 13 = $390.
Entry: Debit seller $390; credit buyer $390. The buyer will pay the lender for days belonging to the seller. Calculate interest using principal and rate, not the entire mortgage payment. This example concerns an assumed loan, not prepaid interest on a new loan.
Example 4: An expense already paid by the seller
Given: The seller paid a $300 association assessment covering June 1–30. The problem directs you to prorate it. Closing is June 11; the buyer receives that day. Use June's 30 actual days.
Daily expense = $300 ÷ 30 = $10.
Buyer's days = June 11 through June 30 = 20 days.
Buyer's share = $10 × 20 = $200.
Entry: Debit buyer $200; credit seller $200. Here the buyer reimburses the seller. This is why “always debit the seller” is not a universal proration rule.
Try it yourself
Answer these before reading the explanations. Apply only the facts given.
1. Choose the amount and the entries
A buyer assumes a $182,500 loan at 6%. The buyer will pay the entire month's unpaid interest. Closing is August 9; the buyer receives the closing day. Use actual days and a 365-day year. What is the seller's interest adjustment?
- A. Debit seller $240; credit buyer $240.
- B. Debit buyer $240; credit seller $240.
- C. Debit seller $270; credit buyer $270.
- D. Debit buyer $270; credit seller $270.
2. Collected rent
The seller collected $3,100 for July. Closing is July 21; the buyer receives that day. Use July's 31 actual days. How much rent belongs to the buyer, and what are the entries?
3. Prepaid expense
The seller paid a $900 assessment for September. The problem directs you to prorate it. Closing is September 10; the buyer receives that day. Use September's 30 actual days. What is the adjustment?
Answers and explanations
- A: $240 debit seller and credit buyer. $182,500 × 0.06 ÷ 365 = $30 per day. August 1–8 gives 8 seller days: $30 × 8 = $240. B reverses the parties. C incorrectly includes the closing day for the seller. D makes both errors.
- $1,100 debit seller and credit buyer. $3,100 ÷ 31 = $100 per day; July 21–31 is 11 buyer days. The $2,000 seller share is retained by the seller, not transferred.
- $630 debit buyer and credit seller. $900 ÷ 30 = $30 per day; September 10–30 is 21 buyer days. The buyer reimburses the seller for those days.
For another check, change who receives the closing day in practice question 1. If the seller receives August 9, the seller owes 9 days × $30 = $270. Only the day allocation changed; the reason for the debit and credit did not.
If your answer is still different
Check the period, divisor, closing-day assignment, paid/unpaid status, rounding, and which party you debited. Review Real Estate Math: How to Choose the Right Formula and Read Exam Questions and Compare Answer Choices.
For help with a permitted practice question, submit a support request with the course, unit or page, full practice wording, and your calculation steps. For an actual closing, the contract and settlement instructions determine the applicable allocation.
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