How is interest on an assumed loan recorded in a settlement?

When an assumed loan is involved in a settlement, the recording of interest payments reflects the fact that the buyer is taking on the loan and will be responsible for making the interest payments. In this scenario, the buyer is credited because they are now benefiting from the loan, effectively receiving the advantage of the financing already in place. Conversely, the seller is debited as they are transferring this responsibility and relinquishing the interest income they would have received if they retained the loan.

This understanding aligns with standard practices in real estate transactions, where debits and credits are used to clearly show who owes what and who receives what. The interest on the assumed loan represents an outgoing amount for the seller and an incoming amount for the buyer, which justifies the credit to the buyer (receiving the benefit of the loan) and the debit to the seller (losing that benefit).

The other options do not accurately reflect the relationship between the buyer and seller under this situation, emphasizing the importance of understanding how financial elements in a transaction are recorded and who bears the financial responsibility.