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Level 2

Mid-year Business Purchase

We bought our business on 6/15 and converted it from a single-member LLC to a multi-member. Prior to that date, the business' income would have been considered belonging to its single member from a tax perspective due to the pass-through entity treatment. We started using QBO that day and recorded all our income and expenses in it. Our first transaction in the register is dated 6/15. 

 

Because our books opened on that date, the proceeds of sales prior to 6/15 do not appear in our records. As a result, our Profit and Loss report shows the business has a negative $6K net income. Is this correct or do we need to go back to January 1 and enter all those previous transactions before we owned the business?

Solved
Best answer 12-27-2019

Best Answers
Highlighted
QuickBooks Team

Mid-year Business Purchase

Yes, that's correct, NumbersHurtMyHead.

 

Before you create an opening balance, make sure you don't already have one entered. Adding a second opening balance, will count the transactions twice.

 

To locate the transaction, you can follow these steps:

  1. Go to Accounting located on the left panel.
  2. Select Chart of Accounts.
  3. Find the account and select View register from the Action column.
  4. Click the Funnel icon above the Date column.
  5. Type opening balance in the Find box and click Apply. The transaction should have Opening Balance Equity in the Payee/Account column and Opening Balance in the Memo column.

Please see sample screenshot below:

 

If there's no opening balance recorded in that account, then let's create a journal entry.

  1. On the left panel, click the + New button.
  2. Under Other, select Journal Entry.
  3. Enter a Journal Date that is before the oldest transaction already in your account. 
  4. On the first line, select the account you want to enter the opening balance for.
  5. On the second line, choose the Opening Balance Equity in the Account column.
  6. Enter a note in the Description field, so you know what the journal entry is for.
  7. Click Save or Save and close.

You can check this article for the detailed instructions: What to do if you didn't enter an opening balance in QuickBooks Online. I'm also adding this sample screenshot.


 

Once with the steps above, you can start recording the transactions manually

 

You can also check these articles for reference:

Feel free to get back to us at anytime you have additional questions. We're always around to help you some more. Thanks.

View solution in original post

7 Comments
Highlighted
QuickBooks Team

Mid-year Business Purchase

Hello there!

 

The Accounts Payable and Receivable transactions were acquired when you bought the business. We can do a lump sum entry through a Journal Entry or manually enter the transactions to carry over the balances. I suggest reaching out to an accountant to walk you through on how to enter the transactions and the accounts it'll affect. 

 

I have a few articles that you check out in handling sales and expense transactions. 

 

You can always reach out to me if you need more help. 

Highlighted
Level 2

Mid-year Business Purchase

Hi Catherine

 

So from your response I'm guessing I do need to enter the income and expenses prior to 6/15 on my books, either one at a time or via a lump sum entry. I'll look into contacting an accountant.

Highlighted
QuickBooks Team

Mid-year Business Purchase

You got it right, NumbersHurtMyHead.

 

You'll have to enter the income and expenses acquired by the business before June 15. Here's an article for the steps on how to create a Journal Entry in QuickBooks Online: https://quickbooks.intuit.com/learn-support/en-us/journal-entries/create-a-journal-entry/00/192925

 

 

Lastly, you can easily find an accountant expert in QuickBooks through this link: Experts Near You. Just select the field of expertise you're looking for. Also, enter your ZIP code on the search bar and click Search. 

 

 

 

Stay around here if you have other questions related to QuickBooks. We'll be more than happy to help you out with them anytime. 

Highlighted
Level 2

Mid-year Business Purchase

I have all the bank statements from this year. It will take a little longer but I'm thinking it's better for me to enter each transaction as opposed to a lump sum journal entry. 

 

If I decide to do that, I'm guessing I would enter January's starting bank balance as Opening Balance Equity, then use journal entries to transfer the OBE to the equity accounts of the four members of the LLC, and then manually enter each transaction.

Highlighted
Level 2

Mid-year Business Purchase

I have all the bank statements going back to the beginning of the year. It would take a little longer but it sounds like it would be better to enter each transaction and assign them to their appropriate accounts instead of doing a lump sum journal entry.

 

If I did that, I'm guessing I would enter January's opening bank balance as Opening Balance Equity, then transfer that OBE evenly into the equity accounts of the four LLC Members, then enter each transaction accordingly. Does that sound correct?

Highlighted
QuickBooks Team

Mid-year Business Purchase

Yes, that's correct, NumbersHurtMyHead.

 

Before you create an opening balance, make sure you don't already have one entered. Adding a second opening balance, will count the transactions twice.

 

To locate the transaction, you can follow these steps:

  1. Go to Accounting located on the left panel.
  2. Select Chart of Accounts.
  3. Find the account and select View register from the Action column.
  4. Click the Funnel icon above the Date column.
  5. Type opening balance in the Find box and click Apply. The transaction should have Opening Balance Equity in the Payee/Account column and Opening Balance in the Memo column.

Please see sample screenshot below:

 

If there's no opening balance recorded in that account, then let's create a journal entry.

  1. On the left panel, click the + New button.
  2. Under Other, select Journal Entry.
  3. Enter a Journal Date that is before the oldest transaction already in your account. 
  4. On the first line, select the account you want to enter the opening balance for.
  5. On the second line, choose the Opening Balance Equity in the Account column.
  6. Enter a note in the Description field, so you know what the journal entry is for.
  7. Click Save or Save and close.

You can check this article for the detailed instructions: What to do if you didn't enter an opening balance in QuickBooks Online. I'm also adding this sample screenshot.


 

Once with the steps above, you can start recording the transactions manually

 

You can also check these articles for reference:

Feel free to get back to us at anytime you have additional questions. We're always around to help you some more. Thanks.

View solution in original post

Highlighted
Level 1

Mid-year Business Purchase

Since you purchased the business on 6/15, you would start entering business activity as of 6/15. You would not enter any business income and expenses prior to 6/15 because the prior owner will report that information on their final income tax return. You reporting this information also would be considered “double dipping” per the IRS.

 

You therefore would not need to report any activity on your books prior to 6/15 because you didn’t have ownership prior to 6/15. You would simply start with opening balance equity on the date you purchased the business. Opening balance equity would record all asset, liability or equity account balances such as bank account balances, accounts receivable, accounts payable, etc.

 

I suggest you get with a Full cycle Accountant who only deals with business acquisitions to assure your accounting is accurate, because a lot of factors come into play when purchasing a business. All of the facts would need to be reviewed in order to truly assure your initial

Financial statements are accurate and this forum can’t necessarily provide everything you need.

 

 

For example, if the company was on accrual basis and you’re now reporting on a cash basis does a change in accounting method need to be submitted to the irs or does EIN and ownership information need to updated with the irs. You may also verify articles of organization have the necessary changes needed and franchise tax reporting requirements are correct considering the business acquisition.

 

Most company’s first year of operation is on a short accounting year. Which means the accounting period is less than 12 months. For example, if you purchased the business on 6/15 and have a calendar year end your first year tax return would have a short accounting year of 6/15-12/31, given you are on a calendar year end.

 

Hopefully this information helps. Please take my suggestions and get with accountant who specializes in business acquisitions. It’ll be worth the investment.

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