When a buyer purchases a rental property with an existing tenant, which of the following accounting actions are usually made at settlement?

When a buyer purchases a rental property with an existing tenant, the accounting actions taken at settlement typically involve the allocation of rent responsibilities between the buyer and the seller. The buyer will usually agree to take on the rental income, which is already being generated by the property through the existing tenant.

In this scenario, the seller is credited for the portion of the rent that they have already collected on behalf of the tenant. This credit reflects that the seller should not keep the rent amount that is attributed to the period after the closing date, as the buyer will assume ownership and the right to collect rent going forward. Conversely, the buyer is debited to reflect their assumption of responsibility for that rent.

This accounting method ensures a fair transaction, where both parties settle their dues appropriately according to the timing of rental income collected versus the sale. Thus, this approach represents a common practice in real estate transactions involving rental properties.