[tmayer]

What accounting entries do I make to the balance sheet to discontinue or shutdown a business?

[codyman144]

Theoretically it is pretty simple just zero out all the account balances. In practice it is not as easy depends on what type of business you are talking about.

Are you talking about a Sole-Proprietorship (One Owner), Partnership (A few owners) or a Corporation (Very many owners)?

[rehmanvohra]

The answer is not that simple. There are quite a few aspects that have to be considered. Entries in accounting records are not made just as one of the readers has said. Usually the following steps are involved:
1. Identify the discontinued segment
2. Disclose the expected date of disposal, if known
3. The expected manner of disposal
4. Disclose the net assets of the discontinued segment at the balance sheet date
5. Disclose the operating income or loss from date of decision to the balance sheet date

[morgaine300]

Codyman did say that in practice it might not be so easy, and also asked what type of organization this is. If it's a small sole proprietorship, yes it might be that easy and there aren't any "disclosures."

The OP hasn't given anywhere near enough information for anyone to really answer the question at all.

[rehmanvohra]

codyman did say that in practice it might not be so easy, and also asked what type of organization this is. If it's a small sole proprietorship, yes it might be that easy and there aren't any "disclosures."

The OP hasn't given anywhere near enough information for anyone to really answer the question at all.

Agree that the question is general one and lacks details. However, the GAAP is applicable to all profit oriented entities and their application is encouraged. It is not restricted just to quoted corporations. If such treatment is used, it enhances the value of the business.

[codyman144]

Agree that the question is general one and lacks details. However, the GAAP is applicable to all profit oriented entities and their application is encouraged. It is not restricted just to quoted corporations. If such treatment is used, it enhances the value of the business.

Of course you have to use GAAP but how simply or complex the transitions and entries need would be vary greatly on the size and type of organization we are discussing. Simply put we/I cannot give an accurate answer with so little information.

And no offence here but the way you write your posts it does not sound like you have spent one day working in a accounting department of a small to medium sized business. No one talks that way in the accounting world.

[morgaine300]

No, GAAP doesn't have to be used in many businesses. It must be used in publicly traded companies, and sometimes in other instances. I've used GAAP at most jobs (mostly small companies that don't have to use it), but not 100% of the time. We just cheat things a lot in small companies. And if it were a very small, one-person, privately owned company, this type of thing really just doesn't have to get difficult. And I don't see a reason to make something difficult when it doesn't need to be.

Though... we still don't have any kind of info to know what's going on here. However, if this were some larger company, I would hope they'd have their own accountant who wouldn't be on AMHD asking such questions.

[rehmanvohra]

Of course you have to use GAAP but how simply or complex the transitions and entries need would be vary greatly on the size and type of organization we are discussing. Simply put we/I cannot give an accurate answer with so little information.

And no offence here but the way you write your posts it does not sound like you have spent one day working in a accounting department of a small to medium sized business. No one talks that way in the accounting world.

No, I am not offended, I am just a student of accounting and finance and whatever I have stated in my posts is based on the knowledge and understanding of the famous text books by the US and UK authors.

I hope you will agree that the financial statements must be useful for the users to make rational economic decisions and that they must also meet the qualitative characteristics, both primary and secondary. I wish you could with your vast experience kindly explain how would you achieve these characteristics and strike a balance between costs and benefits.

[morgaine300]

No, I am not offended, I am just a student of accounting and finance and whatever I have stated in my posts is based on the knowledge and understanding of the famous text books by the US and UK authors.

Just like every other major at any college, textbook and real life can be two different things. Most of what we get here is homework, and even most of that is first-year level classes that over-simplify things much of the time. But real life doesn't always stick to anything learned in a textbook, even when it's based on rules.

I hope you will agree that the financial statements must be useful for the users to make rational economic decisions

True... but do any of your textbooks do very, very small companies where the only user is the person who owns the place? I know of someone who ran a company, contracting jobs, and he kept no books, and his philosophy was that if his bank account was going up, he was making money, and if it was going down, he was losing money. That philosophy of course gave me the shivers, but it worked for him. When he stopped doing the work, he certainly wasn't worried about what to do with his "books." Do your famous authors teach you stuff like that?

I wish you could with your vast experience kindly explain how would you achieve these characteristics and strike a balance between costs and benefits.

That is something each individual company has to do for itself. You have to know first what all the costs and benefits are, and they don't always have dollar signs in front of them.