Acquisition Accounting

No, this isn’t a term used to justify your latest shopping binge. (Don’t you wish.)

Acquisition accounting is a structured system of checks and balances. If your business buys another business, you must account for what you’ve bought. Otherwise, you’re in deep doo-doo.

In acquisition accounting, this is done by way of the Generally Accepted Accounting Principles (GAAP), which is a system set up by the smarty pants out there to keep businesses honest, ethical, and standards-based. When it comes to acquisition accounting, businesses must analyze and record the fair market value of a whole bunch of complex things. These include: tangible assets and liabilities (inventory, land, buildings, etc.), intangible assets (intellectual property that the company owns, like patents and copyrights), non-controlling interest, and consideration paid (how a selling business is paid by the acquirer). Once these steps are complete, the potential amount gained by the sale is measured.