# I just bought a small business — do I keep the seller's books or start new ones, and how do I record the purchase?

Applies to: United States · Updated 2026-09-30

It depends on what you bought. If you bought the business's assets and operations, the seller's books stay with the seller: open your own ledger at the closing date and record the purchase by spreading the whole price, including amounts payable later, across each asset acquired and each obligation assumed. If you bought the entity itself, its books continue. Either way, obtain the seller-period records at closing, keep what the IRS requires, and verify every opening balance.

## Did you buy the assets and operations, or the entity itself?

Read the signed purchase agreement. If the seller, or the seller's company, sold you listed assets and you took on only the debts the agreement lists, you bought the assets and operations. A seller trading in their own name has no shares or membership interests to sell, so that purchase is the asset route. If the owners sold you their shares or membership interests, you bought the entity itself: the same company, with its history and obligations.

Either can be a business combination: Deloitte's roadmap summary of business-combination accounting says one typically occurs when an entity purchases the equity interests or the net assets of one or more businesses, and that the definition covers any event in which an entity or individual obtains control of a business.

On either route, apply one more test. The same summary describes FASB's screen: if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business, and it is recorded as an asset acquisition, described below. If the screen is not met, the set cannot be a business unless it includes an input and a substantive process that together significantly contribute to the ability to create outputs; settle this with your accountant.

## What happens to the seller's books on each route?

The route decides which of three outcomes applies:

| What you bought | Your ledger | The seller's records |
|---|---|---|
| The assets and operations | A new ledger, or your company's existing one, opens at closing from the acquisition entry. | They stay the seller's. Copies you obtain are history, not a ledger you post to. |
| The entity, in its current system | The entity's ledger continues as yours. | They are the entity's own records and stay with it. |
| The entity, moved to a new system | A new ledger opens from the entity's balances at the close of the closing date. | The old file is kept as history. |

On the asset route, do not carry on in a copy of the seller's file: it holds balances you did not buy, such as the seller's equity and any cash or debts the seller kept.

On the entity route, the price need not touch the entity's books. Deloitte's overview of pushdown accounting says an acquiree can use the acquirer's basis or its own historical carrying amounts for the assets acquired and liabilities assumed in its separate financial statements. Under FASB's ASU 2014-17 an acquired entity that is a business may elect this pushdown option whether an individual or an entity obtained control, and once applied the election is irrevocable. Without it, the price you paid for the shares does not reach the entity's books. If a company of yours bought the shares, the same Deloitte overview says Topic 805 applies in the acquirer's consolidated financial statements; do not post the acquisition entry in that company's ledger, since the entity's ledger already holds those assets and debts. Settle pushdown and consolidation with your accountant before the first post-closing statements.

## How is the opening position worked out?

Deloitte's roadmap summary defines the acquisition date as the date on which the acquirer obtains control of the acquiree, usually the date on which the acquirer legally transfers the consideration to the seller. Use the close of that day as your cut-off. The same summary adds that in unusual circumstances the acquisition date can be before or after the closing date; if so, your cut-off moves with it.

On the asset route, build the opening position from the deal, not from the seller's balance sheet. Deloitte's roadmap section on separate transactions quotes Topic 805's rule that only the consideration transferred and the assets acquired and liabilities assumed in the exchange are recognized. So only balances the agreement transferred to you come across; the seller's equity, historical cost, accumulated depreciation and anything it kept stay out.

The amounts are acquisition-date values. Deloitte's roadmap summary quotes the measurement principle: identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair values. The summary adds that certain items are exceptions, measured under other GAAP; leave those to your accountant.

On the entity route without pushdown, the opening position is the entity's own trial balance at the close of the closing date, which you prove rather than remeasure.

Before any post-closing activity, the opening position must be complete and balanced, and any Opening Balance Equity account your software created must be cleared.

## Which obligations came with the business, and which stayed with the seller?

On the asset route, record only the obligations the agreement says you assume, usually listed in a schedule: supplier bills or an equipment loan, for example. Enter each at the closing date and check it against a statement you obtain from the creditor or lender directly, not a copy from the seller. Everything else stays out of your books as the seller's under the agreement, even when a bill about the seller's period reaches you after closing. Whether you can be pursued for it is a legal question: take any such bill or claim to whoever advised on the closing before recording or paying it. Leaving out an obligation you did assume overstates the net assets you bought and understates goodwill by the same amount.

On the entity route, the entity's books keep showing everything it owed at closing, because it is the same entity. Who bears any of it is a matter of the agreement.

## How do you record the purchase?

Spread the price across what you acquired and assumed; one amount in a "business purchase" or goodwill account leaves nothing to depreciate or to remove when an asset is sold. For a business, the acquisition method in FASB's Topic 805 governs the spread, in this order:

1. Measure the consideration. Deloitte's roadmap section on measuring consideration transferred quotes Topic 805: it is the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree, and the equity interests issued by the acquirer.
2. Recognize each identifiable asset acquired and liability assumed at its acquisition-date value, as above.
3. Record goodwill as the remainder. Deloitte's roadmap summary says goodwill is measured as a residual: the excess of the consideration, plus any noncontrolling or previously held interest, over the net identifiable assets acquired and liabilities assumed.

If the consideration is less than the net identifiable assets, there is no goodwill; Deloitte's roadmap summary says a bargain purchase gain is then recognized in earnings, but only after reassessing whether everything was appropriately recognized and measured. Settle it with your accountant.

Deloitte's roadmap section on acquisition-related costs quotes Topic 805: deal costs are expensed in the periods in which the costs are incurred and the services are received, except that the costs to issue debt or equity securities follow other applicable GAAP.

FASB's ASU 2014-18 lets a private company make an accounting policy election under which customer-related intangible assets, unless they are capable of being sold or licensed independently, and noncompetition agreements are not recognized separately from goodwill. An entity that elects it must also adopt FASB's private company alternative for amortizing goodwill, so decide both with your accountant.

If what you bought is not a business, Deloitte's roadmap section on asset acquisitions says the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values, and goodwill is not recognized. The same section says contingent consideration there, unless accounted for as a derivative, is generally recognized when probable and reasonably estimable or when resolved; settle any earn-out with your accountant before recording it.

Any tax allocation of the price is a separate question for your tax adviser.

## What must be in hand before you post the entry?

Have these in hand first:

- The signed agreement with its schedules of assets bought and obligations assumed
- The closing statement showing cash paid, amounts sent to escrow and any adjustments
- The terms of any seller note, deferred payment, escrow or earn-out
- The acquisition-date value of each asset and obligation, from whoever measured it
- The inventory count, fixed-asset list, and receivables and payables listings at the closing date

If some values are not final, record provisional amounts and label them. Deloitte's roadmap summary says that during the measurement period the acquirer recognizes provisional amounts for the items for which the accounting is incomplete. The period ends as soon as the acquirer receives the information it had been seeking about facts and circumstances that existed as of the acquisition date, or learns that it cannot obtain further information, and it cannot be more than one year after the acquisition date.

## What do the entry and opening balance sheet look like in practice?

A new company, funded with 210,000 by its owner and keeping accrual-basis books, buys a bakery's assets and operations. At closing it pays the seller 170,000 and pays 20,000 into an escrow account it does not own, held against the seller's warranties. It also gives the seller a 60,000 note (fair value 60,000) and an earn-out valued at 12,000, and assumes 11,000 of supplier bills. The acquisition-date values are receivables 18,000, counted inventory 25,000, equipment 90,000 and trade name 30,000.

The consideration is 262,000 (170,000 + 20,000 + 60,000 + 12,000). Net identifiable assets are 152,000 (18,000 + 25,000 + 90,000 + 30,000 − 11,000). Goodwill is the 110,000 difference.

| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | 18,000.00 | |
| Inventory | 25,000.00 | |
| Equipment | 90,000.00 | |
| Trade name | 30,000.00 | |
| Goodwill | 110,000.00 | |
| Accounts payable (assumed) | | 11,000.00 |
| Note payable to seller | | 60,000.00 |
| Earn-out liability | | 12,000.00 |
| Cash (170,000 to seller, 20,000 to escrow) | | 190,000.00 |
| Total | 273,000.00 | 273,000.00 |

If you import bank activity, match the 170,000 and 20,000 payments to this entry rather than recording them again.

After the owner's 210,000 and this entry, the opening balance sheet is:

| Opening balance sheet at closing | Amount |
|---|---|
| Cash | 20,000.00 |
| Accounts receivable | 18,000.00 |
| Inventory | 25,000.00 |
| Equipment | 90,000.00 |
| Trade name | 30,000.00 |
| Goodwill | 110,000.00 |
| Total assets | 293,000.00 |
| Accounts payable | 11,000.00 |
| Note payable to seller | 60,000.00 |
| Earn-out liability | 12,000.00 |
| Owner's contributed capital | 210,000.00 |
| Total liabilities and equity | 293,000.00 |

The deal's legal fees are not part of this entry or goodwill; expense them when incurred (the example omits them). The entry is on the accrual basis; if you keep cash-basis books, how the receivables and bills you took over reach your income and expenses when collected or paid turns on tax rules, so settle it with your tax adviser before posting those lines.

## What if part of the price is paid later?

These rules apply when what you bought is a business. What you agreed to give the seller in exchange for the business is part of the price at the acquisition date, even if paid later. Record each component then:

- **Seller note or deferred payment.** It is a liability incurred to the former owners, so under the measure in Deloitte's section on consideration transferred it enters the price at its acquisition-date fair value.
- **Earn-out.** Deloitte's roadmap section on contingent consideration quotes Topic 805: the acquirer recognizes the acquisition-date fair value of contingent consideration as part of the consideration transferred.
- **Escrow.** Deloitte's section on consideration transferred says it is generally considered appropriate to include amounts held in escrow pending the seller's representations and warranties in the consideration at the acquisition date. If the escrow instead turns on an uncertain future event, consider whether it is contingent consideration. If the escrowed cash sits in an account you legally own, it may stay your asset; then consider whether to recognize a liability to the seller, which would form part of the consideration. Each escrow's terms must be evaluated individually.
- **Working-capital adjustment.** The same section says a later payment or receipt adjusts the consideration if the adjustment is made before the end of the measurement period; one paid or received after that period is recognized in earnings.

Topic 805, quoted in Deloitte's section on separate transactions, treats paying former owners for future services as a separate transaction. If a later payment depends on the seller working in the business after closing, ask your accountant whether it is price before recording it.

A bank loan that funded the purchase is your own debt, not part of the price. When a note or deferred payment is paid, record it against the liability set up at closing. An earn-out's final payment need not equal the fair value you recorded; settle with your accountant how that liability is carried and where any difference goes before the first payment.

## How do you handle money that crosses the closing date?

Money keeps moving through the same accounts after closing, so sort each receipt and payment by the cut-off. On the accrual basis, record each one this way:

| After closing, you | Record it as |
|---|---|
| Collect a receivable you bought | A reduction of that receivable, not revenue |
| Collect a receivable the seller kept | An amount owed to the seller |
| Pay a bill you assumed | A reduction of that payable, not an expense |
| Pay a bill the seller kept | An amount the seller owes you |
| Learn the seller received money for your post-closing sales | An amount the seller owes you |

The rows for items the seller kept are the same on the cash basis, because that money was never yours. Record the settlement of amounts owed to and by the seller when it is made under the agreement, and keep the workings. On the entity route, the entity's receivables and payables simply continue; sort only what the agreement assigns to the seller.

## How do you set up receivables, payables, inventory and fixed assets?

Each continuing subledger must total its ledger account at the acquisition date, before any new activity. Set each up this way:

- **Receivables.** List the receivables you acquired customer by customer, trace each to its invoice and to the customer's payment into your account or a confirmation you obtain from the customer directly, not through the seller, and make the list total the receivables account.
- **Payables.** List the obligations you assumed creditor by creditor, agree each to a statement you obtain from the creditor or lender directly, not a copy from the seller, and make the list total the ledger.
- **Inventory.** Count it at the closing date yourself, or watch the count, price it at the assigned value, keep the count sheets and make the inventory account equal them.
- **Fixed assets.** See each asset on the seller's list, then enter it in your register at its assigned amount, dated the closing date on the asset route. The IRS's page on what records to keep says asset documents should show, among other things, when and how you acquired the assets, the purchase price and the depreciation deductions taken. The assigned amount is your books' figure; tax figures come from the separate tax allocation.

On the entity route without pushdown, the subledgers and register continue with their history, including depreciation already taken; prove each totals the ledger at closing. With pushdown, restate them to the new basis with your accountant before trading on them.

## What if the seller's records use another basis or system?

Books kept on the cash method may not show receivables, unpaid bills or accruals, so build those balances from the open invoices, bills and payroll records at the closing date, and reconcile the totals to the agreement's schedules before accepting the opening position.

If the seller's figures sit in another system, take closing-date reports (trial balance, receivables and payables listings, fixed-asset list) and reconcile each to the ledger figure it supports. Migrating the entity's history to a new platform, and reconstructing records too incomplete to reconcile, are separate jobs.

## What should you get from the seller, and how long do you keep it?

Get the records at closing, while the seller still holds them. The IRS's page on what records to keep lists supporting documents as including sales slips, paid bills, invoices, receipts, deposit slips and canceled checks, and says all requirements that apply to hard copy books and records also apply to electronic records. Take copies and exports you can open without the seller's login.

On the entity route, the pre-closing records are the entity's own: its ledgers and supporting documents, copies of returns filed in its name, its employment tax records and the records of property it still holds. On the asset route, your purchase documents are your asset records (the same IRS page names purchase invoices and real estate closing statements among such documents), plus the seller's detail behind each balance you took over.

The IRS's page "How long should I keep records?" sets these periods:

| Record | How long, per the IRS page |
|---|---|
| Records supporting income, deductions or credits on a return | Generally, until the period of limitations for that return runs out |
| Records relating to property | Generally, until the period of limitations expires for the year in which you dispose of the property |
| Employment tax records | At least 4 years after the date the tax becomes due or is paid, whichever is later |
| Filed tax returns | Keep copies |

That page defines the period of limitations as the time in which you can amend a return to claim a credit or refund, or the IRS can assess additional tax. For income tax returns its basic period is 3 years, counted from the date the return was filed (a return filed early counts as filed on the due date). It sets longer periods in situations it lists: for example 6 years where unreported income is more than 25% of the gross income shown, and indefinitely where no return, or a fraudulent return, was filed. Any state requirement is separate. The same IRS page adds: before discarding records no longer needed for tax purposes, check whether others, such as your insurance company or creditors, require them kept longer.

## How do you check the opening position before trading on it?

Check each balance, subledger and record at the acquisition date, with evidence that does not rest on the seller's word alone:

| Balance or item | What proves it |
|---|---|
| The acquisition entry | Debits equal credits; the consideration equals the closing statement's cash and escrow plus the note, deferred amounts and earn-out |
| Cash | The bank's own statement for the closing date, obtained under your own access, not a copy from the seller |
| Receivables | The list totals the ledger; each balance traces to an invoice and is borne out by the customer's payment into your account or a confirmation you obtain from the customer directly, not through the seller |
| Inventory | Priced sheets from a count you took or watched equal the ledger |
| Fixed assets | The register totals the ledger, and you have seen each item |
| Payables, loans and other obligations | The list totals the ledger; each balance agrees to a statement you obtain from the creditor or lender directly, not a copy from the seller |
| Note, deferred amounts, escrow and earn-out | Terms agree to the signed agreements; each liability equals the fair value in the entry (the earn-out's valuation, not an agreement figure); escrow paid to an account you do not own is consideration, not a liability |
| Items the seller kept (asset route) | None of the seller's equity, retained cash or retained debts appears |
| Records from the seller | Agreement, closing statement, ledger exports, supporting documents and count sheets on file; on the entity route also filed returns, employment tax records and asset history |

Finish every check you can make at the acquisition date before posting post-closing transactions, and clear the rest, such as customer payments and provisional values, as they arrive; Deloitte's roadmap summary says adjustments to provisional amounts affect goodwill or a bargain purchase gain.

This guide is general information, not tax or legal advice. Confirm with a qualified professional before acting.

## Sources

1. Deloitte (DART) — *Roadmap: Business Combinations, 1.1 Summary of Accounting for Business Combinations*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/chapter-1-overview-accounting-for-business/1-1-summary-accounting-for-business
2. Deloitte (DART) — *Roadmap: Business Combinations, A.1 Overview of Pushdown Accounting*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/appendix-a-pushdown-accounting/a-1-overview-pushdown-accounting
3. Financial Accounting Standards Board — *Accounting Standards Update No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting*, November 2014. https://storage.fasb.org/ASU%202014-17.pdf
4. Deloitte (DART) — *Roadmap: Business Combinations, 6.2 Assessing Whether a Transaction Is Separate From the Business Combination*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/chapter-6-other-acquisition-method-guidance/6-2-assessing-whether-a-transaction
5. Financial Accounting Standards Board — *Accounting Standards Update No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination*, December 2014. https://storage.fasb.org/ASU%202014-18.pdf
6. Deloitte (DART) — *Roadmap: Business Combinations, 5.3 Measuring the Consideration Transferred*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/chapter-5-measurement-goodwill-or-gain/5-3-measuring-consideration-transferred
7. Deloitte (DART) — *Roadmap: Business Combinations, 5.4 Acquisition-Related Costs*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/chapter-5-measurement-goodwill-or-gain/5-4-acquisition-related-costs
8. Deloitte (DART) — *Roadmap: Business Combinations, C.1 Overview and Scope (Accounting for Asset Acquisitions)*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/appendix-c-accounting-for-asset-acquisitions/c-1-overview-scope
9. Deloitte (DART) — *Roadmap: Business Combinations, 5.7 Contingent Consideration*, undated. https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc805-10/roadmap-business-combinations/chapter-5-measurement-goodwill-or-gain/5-7-contingent-consideration
10. Internal Revenue Service — *What kind of records should I keep*, page last reviewed or updated 03-Aug-2026. https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep
11. Internal Revenue Service — *How long should I keep records?*, page last reviewed or updated 30-Jun-2026. https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records

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