Now here's the scenario that is confusing me. Previous owner & we went into agreement that we will pay him extra $50K for the business he lost. It is payable in 12 months. We am using Cash basis of accounting method.
Questions: 1. How would I account the $50k when I set-up my book? Is it long-term liability? Organization cost? or Start-up cost? Will it reduce our beginning capital or equity? Should it become part of rhe property's purchase cost? Please give me the debit/credit entry. 2. How would I account the monthly payment for the $50K. Is it an expense against the long-term liability? Decrease in Asset if it is going to be part of purchase cost? 2. At the end of the year, lets say 6 months after. Out of $50K, we already paid $25K and we still owe $25K. And its time to file the partnerships tax return. Where is my amortization cost will be based? On the $50K or on the $25K? Can I just expensed the $25K and amortized $25K and just recapture the expensed amount on next years Income Tax?
This is really confusing. Pleas help me understand what is going on in our balance sheet & income statement.