How to Accurately Record a House Sale in QuickBooks?
Asked Apr 13, 20150 views1 answer
I need help with recording a house sale. After selling the property, I believe I may have set up the accounts incorrectly or posted the general journal entry wrong. I have made what I thought were the correct journal entries, but the balances on the balance sheet do not add up as expected. Can someone guide me on how to properly enter this transaction? Thank you!
Understanding How to Record a House Sale in QuickBooks
Recording the sale of a house involves several steps to ensure that your financial accounts reflect the transaction accurately. If the balances on your balance sheet do not add up, it may be due to incorrect journal entries or mismanagement of accounts. This guide will walk you through the process of entering a house sale correctly and offer troubleshooting tips for common pitfalls.
Step-by-Step Guide to Recording a House Sale
1. Set Up Necessary Accounts
Before you begin, ensure you have the following accounts set up in QuickBooks:
- Dummy Checking Account: Name it "Closing Account"
- Other Asset Account: Name it "Development Costs"
- Cost of Goods Sold Account: Name it "COGS-Homes"
- Liability Account: Name it "Construction Loan"
2. Create a Sales Receipt for the Home Sale
- Go to Sales > Sales Receipts.
- Click on New Sales Receipt.
- For the first line item:
- Select a service item labeled "Home Sale".
- Enter the total selling price of the home.
- For the next two line items:
- Create a positive line item that decreases the "Development Costs" account by the amount of construction costs.
Expert Answers
H
Heather-Rigell
Answered Apr 13, 2015
When you're ready to record the sale of a house, especially if it's a spec home, there are a few key transactions you'll need to handle. First, you should create a sales receipt for the selling price of the home. In this receipt, the first line item should be labeled "home sale," reflecting the total selling price.
Next, you’ll want to transfer the capitalized costs from your Development Costs asset account to your cost of goods sold account, which you can label as COGS-Homes. This involves entering two line items that offset each other: the first should decrease the Development Costs account by the amount of your construction costs, while the second increases your COGS account by the same amount. This way, you effectively transfer the construction costs to your COGS account.
The net amount from this sales receipt should be deposited into a "dummy" checking account, which you can call the Closing Account. This account helps keep your entries organized and separate from your actual checking account.
After that, you’ll need to create a general journal entry for paying off the construction loan. You can do this by debiting the Construction Loans liability account and crediting the Closing Account. This action reduces the balance in both accounts.
Next, you’ll enter any other seller costs and credits from the closing by writing a dummy check from the Closing Account. Make this check payable to an "other name," like Other Closing Costs, and write it for the total of all remaining closing costs and credits. If you provided any credits to the buyer, make sure to enter those as negative amounts.
Finally, after ensuring the balance in the Closing Account reflects the net proceeds to you as the seller, you can write another dummy check to deposit those proceeds into your actual checking account. Following this procedure will help you keep everything organized and accurately reflect your profits. You might find it useful to run reports like Profit & Loss, Balance Sheet, and Job Profitability Summary to get a clear picture of your financials related to the sale.
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