Am purchasing an existing business, not sure how to handle transaction.
My current question is how to record the earnest money I paid.
To answer your question
Unless the earnest money was refunded when you settled the sale, it acts as a deposit
if the earnest money was 5K, and the purchase price was 100K
at settlement you had to come up with 95K, cash or loan
Now the question is, is this a business buying another, or is this you buying a business?
And if this is a business buying another business, then the entity types matter as well.