USA Revenue recognition on AR from purchased business

[Doemack1987]

I have a client who purchased a business. We’ve set up a brand new Quickbooks file because the previous owner’s file was very messed up and my client wanted a specific new chart of accounts. He is an accrual based business, as was the previous owner.
I’m not typically involved with acquisitions involving a prior company’s AR.
When is the revenue recognized for the purchased AR? Is it the date of acquisition or when the payment is received? Or should it all go to opening equity?
We’re talking about $4 million of AR so how it’s handled is important.
Any ideas would be much appreciated.

 

[DrStrangeLove]

If the purchased business's books are on an accrual basis, then the revenue from the existing A/R has already been booked in the acquired company's books. You might see a gain if the A/R's value is written down to a fair value less than the cash received for it. But the revenue from creating the receivables should have already been recognized and, if the books were closed for the termination of business/operations, combined into R/E.

Did the client personally buy the acquired business, or did the client's business acquire the acquired business? I ask because buying all the equity in the business personally wouldn't require consolidating the books of the two businesses.

What, precisely, did the buyer buy? The stock/equity of the acquired company, or the assets and liabilities of the acquired company? The answer affects the value recognized for the assets and liabilities.

 

[Doemack1987]

Thanks for you reply. It was an asset purchase, not a stock purchase.
The business was bought personally.
I have always thought that the revenue was already recognized by the prior owner, so it comes into new company as opening equity (no revenue attached).
However, I read somewhere that the selling company backs out the recognized revenue from their open AR when they sell and that confused me. I realize it must have been an incorrect answer that I was reading.