Property Purchase Deposit Journal Entry

A property purchase deposit acts as part payment towards the acquisition of a property by a business.

Property Purchase Deposit Accounting Journal Entry Example

Suppose a business pays a deposit of 20,000 in respect of the purchase of a property costing 190,000. At the end of the accounting period all the conditions in the purchase contract have not been satisfied and the deposit remains refundable and is treated as a current asset in the balance sheet.

The bookkeeping records will show the following property deposit accounting journal entry.

Property Purchase Deposit Accounting Journal Entry
Account Debit Credit
Property Purchase Deposit 20,000
Cash 20,000
Total 20,000 20,000

The property purchase deposit is a current asset account representing an amount recoverable in the event that the purchase does not proceed.

The Accounting Equation

The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.

For this transaction the accounting equation is shown in the following table.

Property Purchase Deposit – Accounting Equation
Assets = Liabilities + Owners Equity
– Cash + Deposit = None + None
– 20,000 + 20,000 = 0 + 0

In this case one balance sheet asset (cash), has been decreased by 20,000, and replaced by an increase in another balance sheet asset (property purchase deposit).

Treatment of Deposit when Property is Purchased

When all the conditions in the property purchase contract have been satisfied the business records the following journal entry.

Property Purchase Accounting Journal Entry
Account Debit Credit
Property 190,000
Property Purchase Deposit 20,000
Cash 170,000
Total 190,000 190,000

When the contract to purchase the property is finalized the business pays the balance due of 170,000 (190,000 – 20,000), clears the property purchase deposit account with a credit of 20,000, and records the property as a long term asset in the balance sheet at its full cost of 190,000.

The Accounting Equation

The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.

For this transaction the accounting equation is shown in the following table.

Property Purchase – Accounting Equation
Assets = Liabilities + Owners Equity
Property – Cash – Deposit = None + None
190,000 – 170,000 – 20,000 = 0 + 0

In this case one balance sheet asset (property) has been increased by 190,000, and two other balance sheet assets (cash 170,000 and property purchase deposit 20,000) are reduced by the same amount.

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The property purchase deposit journal entry is one of many bookkeeping entries used in accounting, discover another at the links below.

Property Purchase Deposit Journal Entry February 9th, 2018Team

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