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Join nowMy client purchased a franchise from an existing franchise owner in May. This is a service based company, so they did not get any products or machinery/equipment. They paid $650,000 cash for the business, and then later took out a loan for half of this to pay themselves back a few weeks after. Can you help me figure out how to do these entries for the initial purchase, as well as when they took out a loan?
Thank you!
Your question leaves some to be desired. A service company with no assets - odd to say the least.
You should have got a balance sheet when you purchased the company, that tells you how much value there was in each asset or liability.
Create a cash type bank account called owners and deposit the 650K and use owner equity investment as the source account for the deposit
then create each asset account that is on the balance sheet and "buy" that asset from the owners bank account
Anything left over in the owners bank account purchases an asset you create called goodwill.
then create a liability account for the loan, deposit the funds in the owners bank account using that liability account as the source account for the deposit. Then pay out those same funds and use owners equity drawing as the expense for the payment.
the owners bank account should be zero balance, make it inactive in the chart of accounts
Thank you for your help!
So they bought a franchise from the existing owners. They essentially bought the rights to a territory, and the amount was based on the previous P&Ls. It is a window business, so there was no equipment, vans, buildings, etc. Whenever customers purchase windows, the custom inventory is purchased right then for that specific client, so no inventory was included in the sale either.
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