Bookkeeping Question - How to record a property purchase

[Marian Fine Frueh]

Dear BP community,

Perhaps this is a basic and easy question, but I am not an experienced bookkeeper.  I understand debits and credits and income statement accounts vs. balance sheet accounts.  But I am new to real estate investing this year and don't know how to record an initial purchase of a property.

I purchased a property with traditional financing.  How do I record the cash to close?  

I recorded some of the closing costs (prepaid interest, appraisal, etc.) as expenses.  I created a GL account called Escrow, as an equity account, and I recorded the initial escrow payment there.  I created a liability account called "Mortgage [property address]" and entered the down payment against that account.  And I created a Fixed Asset account called "Property [property address]" and recorded the value of the property there.  I got everything to balance out.

However, then my tax accountant told me something about recording the initial purchase to balance sheet accounts, and said something about cost basis.  I didn't understand what to do. (And he is $200/hour, so I didn't ask for additional details.)

Any help would be much appreciated.  Thank you!!!

Marian

[Simon W.]

closing costs are not expenses unless you are planning to flip. Escrow is not an equity, it is an asset. You need to separate the purchase cost between building and land unless you are flipping.

What platform are you using for your accounting keeping records?

Feel free to connect to discuss further.