What happens to accounts receivable when a business is sold?


What happens to accounts receivable when a business is sold?

Accrual Method of Accounting:

The accrual method of accounting adds another tracking layer to a business by recording when it earns money separately from when it receives money as well as when it incurs costs even if they are not paid. While this adds complexity to a business's accounting practices, it creates a clearer picture of the business for stakeholders to evaluate.

Answer and Explanation:

Most businesses that are sold will sell the accounts receivable to the new owners as part of the selling price.

The sale of a business involves important negotiations and evaluations of the seller's books to determine the value of the assets it holds. Accounts receivable, for example, might be valued with an expectation that some of the balances won't be collected in the sale. The transfer of the business usually does not involve a waiving of bills owed to the old business and the new account holder can demand collection or change the terms of service according to the contracts they acquire in the sale.

Learn more about this topic:

Accounts Receivable: Definition, Process & Examples

from Accounting 101: Financial Accounting

Chapter 7 / Lesson 1

Related to this Question

Explore our homework questions and answers library