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QuickBooks ProAdvisor MBA PHR
QuickBooks ProAdvisor MBA PHR, Management Consultant, QuickBooks ProAdvisor, MBA, PHR
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We purchased a company and I am making semi-annual payments

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We purchased a company and I am making semi-annual payments to previous owner, What is the category that I use for Quickbooks?



These payments would be applied to a liability (loan) that has been created if this is part of the cost of the business that was not paid at the time of sale.

Any interest of each payment that was due on the remaining amount to pay on the purchase would be separately listed as an interest expense and the principal amount would offset the liability until it was all paid.


If the payments are made for a covenant not to compete you would apply the payments to an asset and would be able to deduct via amortization over 15 years the amount that was paid for the covenant not to compete.


Please do let me know if these payments are for some other item or if you need clarification on the answer.


Thank you.

Customer: replied 4 years ago.

We are using Quick books.

First payment we gave her for the purchase to bind the contract. What category is that?

Now we are making another payment to her, what category in Quickbooks would it fall under?

Would it be a current liability or long term?

There is no interest. Only 10% is assets.

Hello again,


The entire purchase price can be set up as a long term liability.

Both the initial payment to bind the contract and the later payments will be used to pay off the liability.


When you make the entry for the liability the other side of that is the assets.

For example, if the entire cost was 100K then the other side might be 10K equipment and 90K goodwill. Of course, you will use more detailed and specific descriptions and amounts (such as each asset and amount for that asset) to get both the liability and the cost of the business on your books.


Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale.

For instructions see


The allocation of items purchased should be the same as that agreed in the contract and that will be reported in the tax return.


Hope this clarifies for you but please ask if you need more help.

Thank you.






I think what you may be saying is that you do not currently have an account setup within your Chart of Accounts to select. You need to create this as a Liability. You can do this 2 ways. One you can create the check as normal and in the account section type the name you wish to use for tracking this payment, i.e. **Previous Owners Name Liability** once you press enter a wizard will pop up to setup up the account properly within the Chart of Account. Select Liabilty and follow the wizard to complete.

You can also get to the wizard by going to your Chart of Account list, Right clicking on the list, Select New Account and follow the Wizard.

I hope this QuickBooks solution helps along with the above technical answer.

Anna M Fox
QuickBooks Certified ProAdvisor
Fox HR Solutions
Customer: replied 4 years ago.

You were very helpful. So I added Liabilities as a category. The 10k paid today went to that category. Now what category should I have for the initial 25K purchase? I have it under retained earnings, and I know that isn't right. Should that also be under the liabilities category?

I appreciate the guidance as I see you are familiar with this product. Thank you very much. Maureen

Hi Maureen,

I'm glad to be of assistance to you. If you need any additional help, please feel free to contact me as I strive for 100% satisfaction in my answers. If my answer was helpful, please rate my service as Excellent so that I may continue to provide services via JustAnswer.

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Anna Fox
QuickBooks Certified ProAdvisor
Fox HR Solutions
QuickBooks ProAdvisor MBA PHR, Management Consultant, QuickBooks ProAdvisor, MBA, PHR
Satisfied Customers: 82
Experience: QuickBooks Pro, POS Point of Sale, Online & Enterprise Solutions
QuickBooks ProAdvisor MBA PHR and other Financial Software Specialists are ready to help you
Hi Maureen,

I just saw that you slipped in another question prior to closing this one & so I did not realize you had a remaining question and I had to Re-Unlock this to answer you. Yes, you can change that initial payment to this same category so that your CPA can track it upon tax prep time.

FYI, as a general rule, you should not place any items into the Retained Earnings account. This account is a QB account and is calculated by QB. You will see it on your reports after your first year in business.

Thanks for allowing me to assist you!