How is a purchase money mortgage reflected in the accounts of buyer and seller?

• A. Debit to Buyer & Credit to Seller
• B. Credit to Seller & Debit to Buyer
• C. Debit to Seller & Credit to Buyer
• D. Credit to Buyer & Debit to Seller

Answer: (D)

A purchase money mortgage is seller financing that shifts part of the purchase price onto a note from buyer to seller. In double-entry terms, the buyer ends up with a liability to the seller, while the seller ends up with an asset (the note) on their books.

For the buyer, the effect is to increase the liability. If the buyer finances the whole price, the entry would debit the property asset for the purchase price and credit the mortgage payable (the note payable to the seller). If there’s a down payment, you’d debit cash for that amount and still credit the mortgage payable for the financed portion. In short, the mortgage payable shows up as a credit entry for the buyer.

For the seller, you recognize the sale and the financing as an asset. At closing, you’d debit cash for any down payment and debit the mortgage receivable (the note from the buyer) for the financed amount, and you’d credit the sales revenue for the total price. So the mortgage receivable is a debit on the seller’s books.

That’s why the correct pattern is a credit to the buyer (the liability) and a debit to the seller (the note receivable).