The deposit or earnest money is recorded as which entry for the buyer?

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

Answer: (C)

Earnest money is a prepayment toward the purchase price that the buyer has already made and that will be applied at closing. Because it has already left the buyer’s hands and will reduce the remaining amount due, the closing statement shows it as a credit to the buyer. This credit reflects the fact that the buyer has paid that money in advance and it will be applied toward the purchase price, lowering the cash the buyer needs to bring to closing. The other options would imply increasing the buyer’s obligations or shifting to the seller, which doesn’t match how earnest money is treated on the closing statement.