How should the adjustment be made at closing when the buyer assumes a mortgage of $110,000?

When a buyer assumes a mortgage, it essentially means that the buyer is taking over the responsibility for an existing loan that was originally secured by the seller. This transaction involves transferring the financial obligation of the mortgage from the seller to the buyer.

In this case, when the buyer assumes a mortgage of $110,000, the closing statement needs to reflect this adjustment accurately. Crediting the buyer represents the fact that the buyer is receiving a loan benefit worth $110,000, as they are now responsible for that mortgage. Conversely, debiting the seller indicates that the seller is no longer responsible for that amount, having transferred the mortgage obligation to the buyer.

Thus, the correct accounting entry for this transaction would involve crediting the buyer for the $110,000 which acknowledges that they are taking over that obligation, while debiting the seller the equivalent amount to indicate that this liability has been removed from their balance. This ensures that both parties’ financial statements are accurately updated to reflect the assumed mortgage.

In real estate transactions, these adjustments are critical for proper financial accounting and ensure clarity in the transfer of obligations between the parties involved.