Recording the Sale of a Business

Transactions for Selling a Business May Be Complicated

Transactions for Selling a Business May Be Complicated

One of my clients sold their business. What would the entry be to record the sale? Do I do anything else with the assets? They all went with the sale.

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You haven't given me enough information to help you.

1. What country? Canada?
2. What is the business structure? Sole proprietorship, partnership, or corporation?
3. If it was a corporation, was it a sale of the assets or a sale of the shares?

Recording the sale of a business can be complex. It requires the closing off / out of the accounts as the new owner will start a new set of books. The bank accounts are closed as the new owner will need to open their own bank accounts for the business.

Generally ... and I do mean generally ... the fair market value (FMV) for all the assets is determined. Any excess in the sale price is goodwill.

If assets were sold (as opposed to shares of a corporation), you will need to record the gain / loss on the sale of each asset. Prior to recording the sale(s), you will need to depreciate the assets ... so you have the net book value (NBV) to determine the gain / loss.

Accounts receivable may be part of the purchase or not.

Existing accounts payable are usually paid by the seller. Existing third party debt will also have to be settled prior to the sale.

As you can see, recording the sale of a business usually requires more than one bookkeeping entry. I would work with the accountant to book the transactions properly. You don't want to inadvertently trigger any negative consequences.

Don't forget to close out all your accounts with CRA which requires a reporting of the GST/HST owing on the sale of the assets in the business.

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