If an insurance premium has been paid outside of closing, how is it represented on the closing statement?

If an insurance premium has been paid outside of closing, how is it represented on the closing statement?

• A. Debit the seller
• B. Credit the buyer
• C. Debit the buyer
• D. There is no entry

Answer: (C)

When an insurance premium is paid outside of closing, it is represented on the closing statement as a debit to the buyer. This debit reflects the fact that the buyer is responsible for the premium, even though it was paid before the closing date. By showing this as a debit, the closing statement accurately accounts for the costs that the buyer must cover in the overall transaction. In real estate transactions, it is common for certain expenses to be handled prior to closing. In this case, the buyer is effectively reimbursing the seller for the insurance premium that has already been paid on their behalf. The debit serves to ensure that all financial responsibilities are clear and that the buyer's overall financial obligation is accurately represented. The other options do not correctly reflect the proper accounting for the paid insurance premium in the context of the closing statement. The seller is not debited because the payment is not their responsibility, and there's a need to accurately convey the buyer's financial obligations. Similarly, indicating a credit for the buyer would imply they are receiving a benefit or reimbursement, which is not the case here. Lastly, claiming there is no entry would overlook the need to reflect this pre-closing transaction appropriately.

When an insurance premium is paid outside of closing, it is represented on the closing statement as a debit to the buyer. This debit reflects the fact that the buyer is responsible for the premium, even though it was paid before the closing date. By showing this as a debit, the closing statement accurately accounts for the costs that the buyer must cover in the overall transaction.

In real estate transactions, it is common for certain expenses to be handled prior to closing. In this case, the buyer is effectively reimbursing the seller for the insurance premium that has already been paid on their behalf. The debit serves to ensure that all financial responsibilities are clear and that the buyer's overall financial obligation is accurately represented.

The other options do not correctly reflect the proper accounting for the paid insurance premium in the context of the closing statement. The seller is not debited because the payment is not their responsibility, and there's a need to accurately convey the buyer's financial obligations. Similarly, indicating a credit for the buyer would imply they are receiving a benefit or reimbursement, which is not the case here. Lastly, claiming there is no entry would overlook the need to reflect this pre-closing transaction appropriately.