Prorations
A proration divides an expense or income between buyer and seller according to how many days each owns the property during the period it covers.
Step 1: Who owns the day of closing?
The contract decides. Many Florida contracts prorate through the day before closing, which means the buyer owns the day of closing. Exam problems should tell you; if one says the seller owns it, count that day for the seller.
Step 2: Find the daily rate
| Method | Daily rate | Counting days |
|---|---|---|
| 365-day (actual days) | Annual amount ÷ 365 | Count the real days in each month |
| 360-day (statutory or banker's year) | Annual ÷ 12 ÷ 30 | Every month has 30 days |
Step 3: Count the right days
Count the days for the party who owes. For unpaid taxes that is the seller, from January 1 up to the last day the seller owns. For prepaid rent or dues it is the buyer, from the first day the buyer owns to the end of the period.
Step 4: Debit or credit?
Ask two questions. Who has paid, or collected, the money? Who should have paid it? The party who owes is debited and the other is credited, for the same amount.
- Paid in arrears (Florida property taxes, mortgage interest on an assumed loan): the seller hasn't paid yet, so debit seller, credit buyer for the seller's days.
- Paid in advance (rent the seller collected, dues the seller prepaid): for rent, debit seller, credit buyer for the buyer's days. For prepaid dues, credit seller, debit buyer for the buyer's days.
Prorations always appear on both sides of the statement in equal amounts.