Many businesses purchase real estate to support operations such as office buildings, warehouses, investment properties. Eventually, they may decide to sell these properties. Whether mortgage, gain or loss, or closing costs involved, it’s critical to record accurate journal entries.
In this article, we’ll you through how to correctly record journal entries for the sale of property, including closing costs, using practical, real-world examples with modified figures to maintain uniqueness.
🧾 What Happens When You Sell a Property?
When you sell a property:
- The property (asset) is removed from your books.
- You may receive cash.
- You may pay closing costs.
- You may settle a mortgage.
- You might record a gain or loss.
All these elements are reflected in your accounting records.
📚 Key Terms to Understand
| Term | Meaning |
|---|---|
| Property/Asset | A fixed asset listed on the balance sheet |
| Closing Costs | Legal fees, agent commissions, and other expenses paid to complete sale |
| Mortgage Payable | A liability account representing borrowed funds |
| Gain/Loss on Sale | Difference between the sale price and book value of the asset |
🧪 Journal Entry Examples for Sale of Property (with Unique Amounts)
Let’s go through three different scenarios to understand the entries better.
✅ Scenario 1: Sale of Property with No Mortgage and No Gain or Loss
Facts:
- Book value of property: $14,500
- Sale price: $14,500
- Cash received: $13,800
- Closing costs: $700
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10/02/2025 | Cash A/C | 13,800 | |
| Closing Costs A/C | 700 | ||
| To Property A/C | 14,500 |
🎓 Explanation:
- Cash received = $13,800
- Closing costs paid = $700
- Total = $14,500 (equal to property’s book value, so no gain or loss)
✅ Scenario 2: Sale of Property with Mortgage and No Gain or Loss
Facts:
- Book value of property: $18,000
- Remaining mortgage: $9,000
- Cash received after sale: $8,300
- Closing costs: $700
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12/02/2025 | Cash A/C | 8,300 | |
| Mortgage Payable A/C | 9,000 | ||
| Closing Costs A/C | 700 | ||
| To Property A/C | 18,000 |
🎓 Explanation:
- Total sale proceeds = $18,000
- Mortgage paid = $9,000
- Cash received = $8,300
- Closing costs = $700
- No gain/loss since proceeds match book value.
✅ Scenario 3: Sale of Property with Mortgage and a Gain
Facts:
- Book value of property: $16,000
- Selling price: $26,000
- Remaining mortgage: $7,000
- Cash received: $18,300
- Closing costs: $700
Calculation of Gain:
Selling Price – Book Value = $26,000 – $16,000 = $10,000 gain
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 14/02/2025 | Cash A/C | 18,300 | |
| Mortgage Payable A/C | 7,000 | ||
| Closing Costs A/C | 700 | ||
| To Property A/C | 16,000 | ||
| To Gain on Sale A/C | 10,000 |
🎓 Explanation:
- Cash + Mortgage + Closing Cost = Total consideration = $26,000
- Property written off = $16,000
- The excess is recorded as Gain on Sale
📈 How Closing Costs Are Treated
Closing costs are selling expenses. They reduce the cash received, so they’re debited in the journal entry. They’re not capitalized and don’t increase the asset’s book value.
✅ Summary Table
| Scenario | Gain/Loss? | Mortgage? | Cash Received | Closing Costs | Entry Type |
|---|---|---|---|---|---|
| Sell at book value, no mortgage | No | No | Yes | Yes | Simple |
| Sell at book value, with mortgage | No | Yes | Yes | Yes | Moderate |
| Sell at gain, with mortgage | Yes (Gain) | Yes | Yes | Yes | Complex |
🧠 Tips for Recording Property Sales
- Always calculate the gain or loss based on book value.
- Ensure mortgage payoffs are recorded liability reductions.
- Record closing costs debits to reflect cash paid.
- Double-check entries to match the sale price and balance sheet impact.
❓ FAQs
Q1: Is cash from sale always equal to sale price?
A: No. The actual cash received sale price minus closing costs and mortgage payoff (if any).
Q2: Where is “Gain on Sale” reported?
A: It appears on the Income Statement as Other Income.
Q3: Are closing costs part of the gain/loss calculation?
A: No. They reduce cash received but do not affect the book value directly.
🏁 Final Thoughts
Selling property can be a simple or complex transaction depending on financing and market factors. Accurately recording the sale, closing costs, mortgage payoff, and gain/loss compliance with accounting standards and presents a clear financial picture.