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melfa
December 17, 2022
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How to handle business aquisition loan

  • December 17, 2022
  • 2 replies
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I recently purchased a business and I'm new to using QBO. It occurs to me that to have an accurate balance sheet, I need to account for what I paid for the business and the loan used to finance the business. I haven't done either of these things. I've been recording the payments on the loan simple as long term debt expense. I am thinking it will be much more helpful to my accountant if I have this split between the interest paid and principle paid since one is an expense that can be deducted from business income and one is not.

 

Let's say that the business cost $1 million and I put $100k down and got a loan for the remaining $900k. How do I set this all up in QBO?

Best answer by Rainflurry

@melfa 

 

Was the sale an asset sale or a stock sale?  If it was an asset sale, you will need the purchase price allocation - inventory (if applicable), equipment, goodwill, non-compete, etc.  Once you have those, you will make a journal entry.  The journal entry will look something like this:

 

 DebitCredit
Inventory$100,000 
Equipment$300,000 
Non-Compete$10,000 
Goodwill$590,000 
   Cash (down payment) $100,000
   Loan payable $900,000

 

Then, when you make the loan payments, you will assign the principal portion to the loan payable account and the interest portion to an interest expense account.  I can assist further if you have more details.

2 replies

M
Mich_S
December 17, 2022

I see you want to keep track of an existing business you purchased, @melfa. Let's ensure everything is in order.

 

You can use the Check or Expense option to record the asset that you purchased. Make sure to set up the account on your Chart of Accounts first. Then, enter the inventory items so you can track their quantities.

 

See these steps to add an expense or check:

 

  1. Click on + New. Then hit Expense or Check.
  2. Go to the Payee field, and pick the supplier. 
  3. Choose the payment account.
  4. Go to the Payment date field, and type in the date for the expense.
  5. Go to the Payment method field, and choose how you paid for the expense.
  6. If you want detailed tracking, fill in a Ref no. 
  7. Under Category details, choose the expenses and assets you acquired. Then add a description. You can fill in the inventories under the Item details section to itemize the expense.
  8. Add the Amount.
  9. Once done, click on Save and close.

 

Find out more information on how to handle loans and repayments in QuickBooks by reading this module: Set up a loan in QuickBooks Online.

 

Lastly, I suggest reaching out to your accountant for more options on how to manage a business acquisition loan. They're also able to provide the right accounts to use. 

 

Once everything is good, feel free to review this guide about taking care of expenses in QuickBooks: Learn how to record, edit, and delete expenses in QuickBooks Online.

 

You can always leave a comment below so we can help you more with this matter or QuickBooks in particular. Take care of yourself!

Rainflurry
RainflurryAnswer
December 18, 2022

@melfa 

 

Was the sale an asset sale or a stock sale?  If it was an asset sale, you will need the purchase price allocation - inventory (if applicable), equipment, goodwill, non-compete, etc.  Once you have those, you will make a journal entry.  The journal entry will look something like this:

 

 DebitCredit
Inventory$100,000 
Equipment$300,000 
Non-Compete$10,000 
Goodwill$590,000 
   Cash (down payment) $100,000
   Loan payable $900,000

 

Then, when you make the loan payments, you will assign the principal portion to the loan payable account and the interest portion to an interest expense account.  I can assist further if you have more details.

M
melfaAuthor
December 19, 2022

Thanks, Rainflurry. It was an asset sale (franchise transfer). There is no inventory as it is a service business.

 

In addition to the amount supplied to the seller against the purchase price of the business, there are closing costs which were built into the loan. Where do I account for those? (Origination fee, survey, legal fee, etc.)

Rainflurry
Rainflurry
December 19, 2022

@melfa 

 

Loan origination fees, surveys and legal fees are expenses that can be added as additional debits based on my rough journal entry above.  You will then enter the corresponding amount as a credit to the loan payable.  The debits and credits of a journal entry must be equal.

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