Recording Sale of Real Estate

by Peter
(Toronto, Ontario, Canada)

I need to make a journal entry to record the sale of an asset (Real Estate). The particulars are as follows:

-Real Estate asset has a book value of $33,135.53
-Real Estate asset was sold for $54,000.00
-Real Estate Commission on the sale was $3,240.00 (giving a profit on the sale of the property of $17,624.47).

Upon the sale of the property, the purchaser paid $10,000.00 to my company and my company took back a mortgage of $44,000.00.

My question is, how would the journal entry to record this sale look like? I use accrual based accounting system.

I have figured out that the sale of the property would go into the debit column and the book value of the property, the real estate commission and profit on the sale of the property would go into the credit column.

What I can't figure out is how to do a journal entry that would record the down payment and the mortgage. Any help you could give would be greatly appreciated.

Thanks.

Peter,

This is a specialized area of bookkeeping which I'm not really up on, so I'm going to place your question in the "Unanswered" section. There may be rules regarding taking a mortgage back on the sale; I don't know but it needs to be checked.

I just attended a Real Estate Bookkeeping webinar this week by David Campbell and Renee Daggett. Renee has written a book titled, Managing Your Properties With QuickBooks that you might be interested in. The book is from a U.S. perspective, but with a few adjustments, I'm guessing it would still assist you in booking your Canadian real estate.

I assume you treat your real estate as inventory if real estate is your business not as a sale of a capital asset of the business.

I'd approach booking the entries this way (but check in with your accountant to be sure)... record the transactions one at a time and not as one big entry ... it will make it easier for you to figure out.

1. Record sale of your inventory of real estate
• DR Accounts Receivable $54,000 and CR Real Estate Property Sales $54,000


2. Remove inventory


• DR Cost of Goods Sold - Property $33,135.53 and CR Inventory $33,135.53


3. Record the selling expenses


• DR Cost of Goods Sold - Commission Paid $3,240 and CR Accounts Payable or Cash in Bank $3,240


4. Record the receipt of the cash received


• DR Cash in Bank $10,000 and CR Accounts Receivable $10,000


5. Record the issuance of the mortgage


• DR Mortgage Receivable $44,000 and CR Accounts Receivable $44,000

Use "T" accounts to help you figure out the debits and credits if necessary. You could, if you want, combine this into one large entry which means the A/R entries would disappear as they net to zero.

Remember to take a look at my "cheat table" when you are having trouble preparing bookkeeping entries.

If the sale was not inventory but sale of a business asset, my chat on Common Bookkeeping Entries can probably help you out if you take the one, two, three approach described above.

Read more on the differences between land (and buildings) as inventory (taxed as business income) versus land (and buildings) taxed as a capital gain or loss.

P.S. In the IPBC forum last week, another CRA reference mentioned with regards to real estate transactions was IT-218R Profit, Capital Gains and Losses from the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa