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MKnauth
Level 1

Selling Business

My business sold, and the buying company deposited money into our account (the amount we sold the company for).

 

How should I categorize this "income"?

3 Comments 3
Rainflurry
Level 15

Selling Business

@MKnauth 

 

Recording the sale of a business can be complex. Was it an asset sale or a stock sale?  Without knowing the basis of your assets/stock as well as the breakdown of the sale price (inventory, FF&E, non-compete agreement, goodwill, liabilities assumed, etc - in the case of an asset sale), there's no way to know how to record the sale.  It's best to contact a CPA/tax accountant.  If you are comfortable sharing more details, I can assist further. 

MKnauth
Level 1

Selling Business

@Rainflurry 

 

thank you for your input.  It was actually a very simple sale, of a single shareholder S Corp.  Invemtory, AP, AR not included in the purchase agreement (they report accrual, but everything is settled within 10 days…).

 

Purchase was broken down into three segments, two deposits, and one final lump.

 

I haven’t recorded a sale before or closed a business, trying to close out as much as I can before handing the file over to the CPA.

 

Two main transaction types I’m looking to categorize correctly are:

1. Revenue from selling business

2. Disbursement to individual when business checking account was closed.

 

Thanks for any and all input ✌🏼

Rainflurry
Level 15

Selling Business

@MKnauth 

 

I’ll need to know if this was a stock sale or an asset sale. The buyer either bought the stock and will continue running the business under the same S-corp name & EIN, or they bought the assets and will run the business under their corporation.  It had to be one or the other and your CPA and the IRS will need to know which.  Without that info, the sale cannot be accurately recorded because your S-corp has basis in everything the buyers purchased and that will dictate how the purchase price is to be allocated. If you record the entire purchase price as income, you will most likely be over-reporting your income from the sale, perhaps significantly. 

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