closing
prepaid expense
A prepaid expense is a cost that has been paid in advance for a period that extends beyond the closing date. In proration, if the seller has already paid an expense such as annual property taxes or a homeowners association fee for time the buyer will own the property, the buyer reimburses the seller for that unused portion. On a closing statement it is shown as a credit to the seller and a debit to the buyer.
- Exam tip
- Prepaid by seller = seller credit, buyer debit. Accrued (unpaid) expense = seller debit, buyer credit. Keep the direction straight.
- Example
- A seller paid $3,600 in annual taxes for the calendar year and closes June 30. The buyer reimburses the seller $1,800 for July through December.
Related terms & state variants
Sources
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Last verified: 2026-10-23