Mastering the Sale of Your Business: How to Calculate Gain/Loss & Identify Assets (2023 Update)

The sale of a business is typically recorded as a gain or loss on the sale of a long-term asset, such as property, plant, and equipment.

The proceeds from the sale, after deducting lawyer and agent expenses, should be recorded as cash in the bank. The gain or loss on the sale is calculated by subtracting the net book value of the assets sold from the proceeds of the sale. The gain or loss would be recorded in the income statement under the heading of "Gain/Loss on Sale of Business".

Goodwill is an intangible asset that represents the excess of the purchase price over the fair value of the net assets acquired in a business acquisition. The goodwill amount would be recorded in the balance sheet under the heading of "Intangible Assets".

In the case of Loss on the balance sheet, it will be recorded as an expense under the heading of "Loss on Sale of Business" in the income statement.

The basis for calculating the gain or loss in the sale of a business is the difference between the sale proceeds received and the adjusted basis of the assets sold. The adjusted basis of assets is the original cost of the assets, plus any improvements made to them, minus any depreciation taken on the assets.

The sale proceeds is the amount of cash or other assets received from the buyer in exchange for the business.

The calculation of the gain or loss on the sale of a business is done as follows:

Gain = Sale Proceeds - Adjusted Basis of Assets Loss = Adjusted Basis of Assets - Sale Proceeds

It's important to note that the gain or loss calculation is only applicable to the assets that were sold as part of the business. Any liabilities assumed by the buyer or cash and other assets retained by the seller are not included in this calculation. It's also important to mention that tax laws may vary for the sale of a business.

here are some examples of typical small business original assets:

1. Real estate: This includes the land and building(s) that the business occupies.

2, Equipment: This includes things like machinery, vehicles, and office equipment that the business uses to operate.

1. Inventory: This includes any goods that the business sells, such as raw materials, finished products, and supplies.
2. Furniture and Fixtures: This includes items such as desks, chairs, and shelving that the business uses to furnish its office or showroom.
3. Software: This includes any software licenses, such as accounting software, that the business uses to operate.
4. Intellectual property: This includes patents, trademarks, copyrights and other intangible assets.
5. Goodwill: This is the value that a business has over its tangible assets, it's usually the reputation, customer base, etc.
6. Accounts receivable: This includes money that the business is owed by its customers.

These are just a few examples, but the specific assets will vary depending on the type of business. It's important to note that the original cost of each asset should include any costs associated with acquiring the asset, such as freight, installation, and legal fees.

It is important to consult with a professional accountant or tax advisor to ensure that the accounting entries are made correctly, as the sale of a business can have tax implications