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MissTammy
March 2, 2024
Question

Sale of Business with Seller Financing

  • March 2, 2024
  • 1 reply
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My LLC sold a business and financed the sale. The note is payable over 5 years.

I have made the journal entry and accounted for depreciation of all assets, the down payment, and the long term asset account for the loan amount.

I'm stuck on what account to credit for the net sale amount.

If I use an income account it looks like I've received that money.

Do I use an accounts receivable account?  This would result in a negative balance on the balance sheet.

 

1 reply

Rainflurry
Rainflurry
March 2, 2024

@MissTammy 

 

Forgive me if you know some of this.  You will have different gains and losses based on each asset class sold.  There's not one net amount.  On a typical asset sale, you may have furniture, fixture & equipment (FF&E), leasehold improvements, goodwill, non-compete, inventory, equipment, etc.  You may have gains or losses on each asset class based on your basis in those assets and the sale price of each.  If you sold inventory at cost, there's no gain or loss - the sale price equals your COGS.  If there's goodwill involved, that's all gain unless you purchased the business and were still amortizing goodwill from your purchase.  If you sold $100K (original cost) of equipment that had been depreciated down to $25K for a sale price of $50K, then you would have a gain on the sale of equipment of $25K.  Take each asset class one at a time and record them to other income accounts: 'Gain on Goodwill', 'Gain on Equipment', 'Non-Compete', etc. 

 

You should still record all of the sale as gain/loss in QB even though you have seller financing and won't receive the full income from the payments for 5 years.  That will be accounted for on your tax return - Form 6252 (Installment Sale Income).  

 

   

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