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November 19, 2010 8:23 AM

Accounting: If you acquire a company who was previously your customer, how to account for their inventory which you sold them without double-counting the sales?

Company A sells widgets to B. B has $100mil in inventory, ~50% of it from A. A records these $50mil in sales as sales, but then buys B outright. When the combined entity sells that inventory to a third party, wouldn't that look like double-counting the sales?

posted by H. Roark to Law & Government (2 answers total)

Best answer: When you purchased the company, you purchased its assets. That is to say you purchased company B's inventory as part of the sale. In other words, you sold those widgets, bought them back, and sold them again. I don't see that as a double sale since you (presumably) paid for them again when you bought Company B.
posted by JMOZ at 8:27 AM on November 19, 2010

JMOZ is right. You sold them twice, so you count both sales. Remember there was a purchase in between the two sales, so that cancels out one of the sales.
posted by yellowcandy at 8:28 AM on November 19, 2010