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Colorado Real Estate Broker License: Free Study Course

Reading a closing statement: debits and credits

Real Estate Closings · 3 study hours

Bottom line: A closing statement has a buyer side and a seller side, each with a debit and credit column; price and prorations appear on both sides, while loans, payoffs and commissions appear once, and the whole thing must match the contract and balance.

Bottom line: A closing statement is a two-sided ledger. A debit is money a party owes or pays out. A credit is money in that party's favor. The last line is either cash the buyer must bring or net money the seller walks away with. Your job is to make every line match the contract and make the totals balance.

Debits and credits, in plain words

  • Buyer debit: things the buyer must pay for (price, lender fees, title policy for the lender, insurance, prepaid interest, reimbursements to the seller).
  • Buyer credit: things that reduce what the buyer must bring (earnest money, the new loan, credits from the seller).
  • Seller credit: money coming to the seller (the price, plus reimbursements from the buyer).
  • Seller debit: things subtracted from the seller (payoff, commission, seller's costs, credits given to the buyer).

Buyer's cash to close = buyer debits - buyer credits. Seller's net = seller credits - seller debits.

Double-entry vs single-entry items

A double-entry item shows on both sides, as opposite entries. The price is a buyer debit and a seller credit. A proration is a seller debit and a buyer credit (or the reverse). Single-entry items show once: the new loan (buyer credit only), earnest money (buyer credit only), the seller's loan payoff (seller debit only), commission (seller debit only), and fees paid to third parties like a lender or title company.

Why this matters: if you match the double entries, they cancel out between buyer and seller. Only the single entries represent money moving to or from outside parties. That gives a built-in check.

Checking against the contract

Before you sign (Rule 6.19.A: accurate, complete, detailed; Rule 6.19.B: if you prepare it, you own the accuracy), compare the statement to the contract and your files:

  1. Price, earnest money amount, loan amount and type, and closing date match the contract.
  2. Who pays each fee matches the contract (documentary fee, title policy, HOA transfer fees, inspections, repairs, seller concessions).
  3. Prorations use the method and closing-day ownership the contract states.
  4. The commission matches the listing contract and any buyer-broker agreement.
  5. The payoff figure matches the lender's payoff letter and the per-day interest through closing.
  6. The documentary fee is right: one cent per $100 (C.R.S. 39-13-102).
  7. Funds in equal funds out.

Loan costs on a loan with a federal mortgage are shown on the lender's Closing Disclosure (lesson c3-06). The broker's statement still must be accurate for the broker's client.

Example with real numbers: a $450,000 sale

The facts: price $450,000. Loan $360,000 (80%) at 6.5%. Earnest money $10,000. Closing Friday August 14, 2026; the buyer owns the closing day. Seller's loan payoff $205,000 plus $650 of payoff interest. Commission 5% total ($22,500). Annual property tax estimate $3,650. HOA dues are $250 a month, paid by the seller for August.

Work the prorations first.

  • Tax: $3,650 / 365 = $10/day. Seller's days: Jan 1-Aug 13 = 31+28+31+30+31+30+31+13 = 225. 225 x $10 = $2,250, a seller debit and a buyer credit.
  • HOA: August has 31 days. Buyer's days: Aug 14-31 = 18. $250 x 18 / 31 = 4,500 / 31 = $145.16, a buyer debit and a seller credit.
  • Documentary fee: 450,000 / 100 = 4,500 x $0.01 = $45 (seller pays under this contract).
  • Prepaid loan interest: 360,000 x 0.065 = $23,400 a year. On a 360-day basis, $23,400 / 360 = $65.00 a day. Aug 14-31 is 18 days. 18 x $65 = $1,170, a buyer debit.
ItemBuyer debitBuyer creditSeller debitSeller credit
Sales price (double)450,000.00450,000.00
Earnest money (single)10,000.00
New loan (single)360,000.00
Payoff of seller's loan (single)205,000.00
Payoff interest (single)650.00
Commission, 5% (single)22,500.00
Owner's title policy (single)1,320.00
Documentary fee (single)45.00
HOA transfer fee (single)350.00
Property tax proration (double)2,250.002,250.00
HOA dues proration (double)145.16145.16
Lender fees (single)1,800.00
Lender's title policy (single)900.00
Settlement fee (single)600.00
Recording fees (single)58.00
Homeowner's insurance, 1 year (single)1,400.00
Prepaid loan interest (single)1,170.00
Subtotals456,073.16372,250.00232,115.00450,145.16
Cash due from buyer83,823.16
Net to seller218,030.16

The recording, insurance, and fee numbers are made-up example amounts. The others come from the facts above.

Add the columns.

  • Buyer debits: 450,000 + 145.16 + 1,800 + 900 + 600 + 58 + 1,400 + 1,170 = $456,073.16.
  • Buyer credits: 10,000 + 360,000 + 2,250 = $372,250.
  • Cash due from buyer: 456,073.16 - 372,250 = $83,823.16.
  • Seller debits: 205,000 + 650 + 22,500 + 1,320 + 45 + 350 + 2,250 = $232,115.
  • Seller credits: 450,000 + 145.16 = $450,145.16.
  • Net to seller: 450,145.16 - 232,115 = $218,030.16.

Second check, a different way. Down payment = 450,000 - 360,000 = 90,000; less earnest money 10,000 = 80,000. Buyer's extra costs = 145.16 + 1,800 + 900 + 600 + 58 + 1,400 + 1,170 = 6,073.16. Less the tax credit 2,250. 80,000 + 6,073.16 - 2,250 = 83,823.16. Same.

Third check: funds in = funds out. In: cash 83,823.16 + loan 360,000 + earnest money 10,000 = $453,823.16. Out: seller net 218,030.16 + seller's payoff 205,650 + commission 22,500 + owner's policy 1,320 + doc fee 45 + HOA transfer 350 + lender fees 1,800 + lender's policy 900 + settlement 600 + recording 58 + insurance 1,400 + prepaid interest 1,170 = $453,823.16. They match. The two prorations did not leave the table: they only moved between buyer and seller.

A wrong line (for example a commission of 5.5% on the statement when the listing says 5%) shows up as a mismatch to the contract even when the columns still balance, so the contract check is not optional.

Law cited

Key terms

Debit
An amount a party owes or pays out on the closing statement.
Credit
An amount in a party's favor on the closing statement.
Double-entry item
An item that appears on both the buyer and seller sides as opposite entries, like price and prorations.
Single-entry item
An item that appears once, such as the new loan, earnest money, a payoff, or a commission.
Cash to close
The buyer's debits minus the buyer's credits: the money the buyer must bring.
Net proceeds
The seller's credits minus the seller's debits: the money the seller receives.
Payoff
The amount needed to clear the seller's old loan on the closing date.
Prepaid interest
Loan interest the buyer pays at closing for the days from closing to the end of that month.
Per diem
A daily amount; used for interest and prorations.
Seller concession
Money the seller agrees to credit the buyer toward the buyer's costs.
Settlement fee
The fee the closing agent charges for running the closing.

Flashcards

What is a debit?

An amount a party owes or pays out.

What is a credit?

An amount in that party's favor.

Buyer's cash to close formula?

Buyer debits - buyer credits.

Seller's net formula?

Seller credits - seller debits.

How does the price appear?

Buyer debit and seller credit (double entry).

How does a tax proration owed by seller appear?

Seller debit and buyer credit (double entry).

Where does the loan appear?

Buyer credit only (single entry).

Where does the commission appear?

Seller debit only.

Funds in = funds out?

Cash + loan + earnest money must equal everything paid out, to the penny.

Doc fee on $450,000?

$45.

Prepaid interest formula?

Loan x rate / 360 x days left in the month, with a 360-day year.

Quiz: 10 questions

Tap an answer. It shows right or wrong and opens the reason. Your score is saved in this browser and counts in the study app.

  1. On a closing statement, a debit is:

    1. A An amount the party receives
    2. B An amount that is always the lender's
    3. C An item that appears on both sides
    4. D An amount the party owes or pays out
    Show answer and why

    Answer: D. An amount the party owes or pays out

    A debit charges the party. A credit is in the party's favor.

    4 CCR 725-1 Rule 6.19.A

  2. Where does the sales price appear?

    1. A Buyer credit and seller debit
    2. B Buyer debit and seller credit
    3. C Seller debit only
    4. D Buyer credit only
    Show answer and why

    Answer: B. Buyer debit and seller credit

    The buyer owes the price and the seller is owed it. It is a double-entry item.

    4 CCR 725-1 Rule 6.19.A

  3. Which is a single-entry item?

    1. A Property tax proration
    2. B Sales price
    3. C The buyer's new loan
    4. D HOA dues proration
    Show answer and why

    Answer: C. The buyer's new loan

    The loan is a buyer credit only. The other three appear on both sides.

    4 CCR 725-1 Rule 6.19.A

  4. Which item is double-entry?

    1. A Property tax proration where the seller owes the buyer
    2. B Seller's loan payoff
    3. C Commission
    4. D Earnest money
    Show answer and why

    Answer: A. Property tax proration where the seller owes the buyer

    A proration is charged to one party and credited to the other. The rest appear once.

    4 CCR 725-1 Rule 6.19.A

  5. Price $300,000; loan $240,000; earnest money $6,000; buyer's other costs $4,500. What is the buyer's cash to close?

    1. A $64,500
    2. B $54,000
    3. C $58,500
    4. D $60,000
    Show answer and why

    Answer: C. $58,500

    Debits: 300,000 + 4,500 = 304,500. Credits: 240,000 + 6,000 = 246,000. 304,500 - 246,000 = 58,500. Forgetting the earnest money gives $64,500.

    General closing math

  6. Price $300,000; payoff $150,000; commission 5%; seller's other costs $2,200. What are the seller's net proceeds?

    1. A $135,000
    2. B $132,800
    3. C $147,800
    4. D $130,800
    Show answer and why

    Answer: B. $132,800

    Commission 300,000 x 0.05 = 15,000. 300,000 - 150,000 - 15,000 - 2,200 = 132,800. $135,000 forgets the other costs.

    General closing math

  7. On the statement the commission line is 5.5%, but the listing contract says 5%, and the columns balance. What should the broker do?

    1. A Sign, since the columns balance
    2. B Sign and fix it after closing
    3. C Tell the buyer to accept it
    4. D Not sign until the commission is corrected to match the contract
    Show answer and why

    Answer: D. Not sign until the commission is corrected to match the contract

    A balanced statement can still be wrong. The broker is responsible for accuracy (Rule 6.19.A and B).

    4 CCR 725-1 Rule 6.19.B

  8. Colorado documentary fee on a $450,000 sale?

    1. A $45
    2. B $450
    3. C $4.50
    4. D $4,500
    Show answer and why

    Answer: A. $45

    450,000 / 100 = 4,500 x $0.01 = $45.

    C.R.S. 39-13-102(2)(b)

  9. Loan $360,000 at 6.5%, 360-day year, 18 days of prepaid interest. What is the charge?

    1. A $1,200
    2. B $1,170
    3. C $1,152
    4. D $1,300
    Show answer and why

    Answer: B. $1,170

    360,000 x 0.065 = 23,400; / 360 = 65.00 a day; x 18 = 1,170. Using a 365-day year would give a different, wrong answer.

    General closing math

  10. Why do double-entry items cancel when you check that funds in equal funds out?

    1. A They are paid to the county
    2. B They are paid to the broker
    3. C They only move money between buyer and seller
    4. D They are always zero
    Show answer and why

    Answer: C. They only move money between buyer and seller

    Prorations and the price are paid by one party to the other, so the money never has to leave the closing table except as the seller's net.

    General closing math

← Prorations: taxes in arrears, rent, HOA duesSeller's net proceeds and buyer's cash to close →