In real estate accounting, when a buyer assumes an existing loan, how is the transaction typically recorded?

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

Answer: (A)

When a buyer assumes an existing loan, the liability transfers from the seller to the buyer. In double-entry accounting, that means the buyer is recorded as taking on a new obligation (a credit to the mortgage payable for the amount of the loan), while the seller’s obligation is removed (a debit to the mortgage payable).

So the typical recording shows a credit to the buyer (increasing the buyer’s mortgage payable) and a debit to the seller (decreasing the seller’s mortgage payable). This mirrors the movement of the debt from seller to buyer. For example, if the loan balance is 200,000 and the sale price is 300,000 with 100,000 cash changing hands, the buyer would record the asset purchase with a credit to Mortgage Payable for 200,000 and the cash paid, while the seller would remove 200,000 of the loan from their books by debiting Mortgage Payable and crediting the property sale accordingly.