How to Record a Closing Statement in QuickBooks

You closed on the property, and the money moved. Now you need to record what happened in QuickBooks.

To record a closing statement in QuickBooks, start with the final statement and check each part of the deal. That includes the property, the loan, money you paid earlier, closing costs and the amount paid or received at closing.

Our process is to work from the final settlement statement, record the closing in a detailed journal entry, match the bank transaction and review the reports for that property. A journal entry puts the different parts of the closing into the right accounts. One entry can contain many lines.

The job is not finished just because the bank transaction has a category. We check that the cash matches the bank and that the reports show the right property and loan balances. Here is what that looks like for a rental purchase, refinance or sale.

Start with the final closing statement

The closing statement, also called a settlement statement, lists the money paid and received in the deal. Use the buyer’s copy for a purchase, the seller’s copy for a sale and the borrower’s copy for a refinance. The document may be labeled HUD, ALTA or Closing Disclosure.

Check the closing date, property address, company or LLC, and bank account that sent or received the money. If you own properties through different LLCs, make sure the closing goes into the right company’s books.

Next, compare the amount on the statement with the bank transaction. Also look for money paid before closing, such as earnest money, the deposit you paid toward the purchase. The final wire is only one part of the deal.

For a sale or refinance, we pull the property’s balance sheet as of the closing date. That report shows what is already on the books, including the existing loan and escrow balances. We need that starting point before recording what changed.

Buying a rental: record more than the wire

Say you buy a rental for $300,000. The lender provides $240,000. You already paid $10,000 in earnest money, so you wire another $50,000 at closing.

This is a hypothetical example. It leaves out closing costs and other adjustments so you can see how the purchase price is paid.

If the books only show the $50,000 wire, where is the loan? What happened to the earnest money? Where is the property?

The entry needs to show all three amounts. We record the land and building separately using records that support the split. The new loan gets its own loan account. We also apply the earnest money already recorded, so a deposit used at closing does not stay on the books as unused money.

Then we work through the other lines on the statement. These can include money the lender holds for taxes and insurance, title fees, bills paid in advance, tenant security deposits and rent split between the buyer and seller. These amounts do not all belong in the same account.

If you are still setting up your accounts, our QuickBooks setup guide for real estate investors explains how to organize them before recording a purchase.

Use a detailed journal entry

We record a closing in one journal entry with separate lines for each part of the deal. This keeps the transaction together while showing where each amount belongs.

We use the closing date and add clear descriptions. In our QuickBooks setup, classes help group activity by property. We add the property’s class to the relevant lines and leave bank and credit card lines without one.

We also attach the final settlement statement to the entry. That keeps the explanation with the transaction, so the next person reviewing the books can follow it.

After recording the entry, we match the downloaded bank transaction to it. Adding the bank transaction again as a new expense or deposit would count the money twice. Intuit’s guide to matching bank transactions in QuickBooks explains when to match an existing record instead of adding a new one.

Refinancing: check both loans

A refinance replaces or changes a loan on a property you already own. Start with the old loan balance and any remaining escrow, which is money held for a specific purpose, such as construction costs or loan payments.

The payoff amount may include interest and fees as well as the loan balance. We compare the payoff with the books and check what makes up the difference. Making the entry balance is not enough if an amount is still unexplained.

Next, we record the new loan, the old loan payoff, any escrow changes and the closing costs. The money received or paid must match the bank transaction.

Check that the old loan is no longer showing as money you owe, the new loan balance is correct and any escrow used at closing has been cleared. The cash in QuickBooks should also match the closing statement.

That is why a refinance deposit by itself is not a useful picture of the transaction. You need to see the debt that changed along with the cash.

Selling a rental: the deposit is not the profit

When you sell a rental, the bank deposit is what remains after the payments made at closing. It does not tell you the profit or loss on the sale.

We review the recorded land and building costs, any closing costs included with the property, the loan and any escrow. We also check accumulated depreciation, the total depreciation recorded so far. A depreciation schedule or prior tax return helps support that amount.

If records are missing, we ask for them. We do not guess at depreciation or change the gain or loss just to make an entry balance.

After recording the sale, check that the books no longer show the sold property or a loan that was paid off. Your tax CPA confirms how the sale should be reported for tax purposes and any related adjustments.

A flip uses different accounts for the sale, project costs and selling costs. We follow separate procedures for flips and rentals because buying to resell is different from owning a rental.

Check the reports after recording the closing

Once the closing is recorded, we review both the balance sheet and the profit and loss report for the property. The balance sheet helps us check what you own and owe. The profit and loss report helps us spot activity that landed in an unexpected income or expense account.

• Cash: Does the entry match the actual amount paid or received, without a duplicate bank transaction?
• Purchase: Is the property recorded? Has the earnest money used at closing been applied to the purchase?
• Refinance: Is the paid off loan gone from the books, and are the new loan and escrow balances correct?
• Sale: Have the sold property and paid off loan been removed from the books, with records to support the sale?
• Reporting: Is the activity in the right company’s books and assigned to the right property? Is the closing statement attached?

This review is part of the work. It gives you a better starting point for tracking the property after the deal closes. Our monthly bookkeeping checklist shows how that review fits into keeping rental books current.

Records to keep after closing

Keep the final settlement statement with the property address, closing date and company or LLC involved. Save the bank records for the closing wire and any earnest money paid earlier.

Also keep the loan and payoff documents. For a rental sale, keep the depreciation schedule or prior tax return used to prepare the entry. Note any costs you paid personally or money that came from another company.

Keeping these records together makes it easier for you, your bookkeeper and your CPA to understand the deal later.

Common closing statement questions

Can you record a closing in one journal entry?

Yes. Our process uses a detailed journal entry with separate lines for the relevant property, loan, escrow, cost and cash amounts. Recording only the wire to a single category leaves out that detail.

Why does the earnest money matter?

It is part of the purchase price that you paid before closing. Applying it to the purchase keeps it from appearing as an unused deposit after the deal is complete.

Is matching the bank transaction the same as checking the closing?

No. Matching connects the downloaded bank activity to the cash recorded in QuickBooks. We still review the loan, property, escrow and other accounts to check the whole transaction.

A simple check for your latest closing

Open the reports for the last property you bought, sold or refinanced. Can you connect the cash, the loan and the property balances to the final settlement statement?

If something is missing or does not match, start there. Our real estate bookkeeping services include setup, cleanup and ongoing bookkeeping. If you would like help, you can book a call.

Author: Kristen Ambrose Owner of Ambrose Bookkeepers

A CPA turned bookkeeper, QuickBooks ProAdvisor, and real estate investor, she helps real estate investors save time and maximize profits with expert bookkeeping.