Working Capital Peg and AR Treatment: Closing Review

Start with the calculation the parties actually agreed

A working-capital true-up is a later calculation of the balances delivered at the agreed closing time. It should answer the purchase agreement's question using its chosen accounts and methods. A new management balance sheet may answer a different question. Use the buyer diligence checklist to assign the accounting and document reviews. Keep the agreement, estimate and final workpaper together so the reviewer can identify that difference.

This guide focuses on completing and checking that workpaper. The working-capital financing guide covers the separate task of funding payroll and other operating needs. The peg definition explains the target itself. Here, the useful outcome is a supported adjustment with every correction traceable to a specific balance.

Before preparing numbers, identify the legal entity, locations, effective time and purchased services. State the currency and whether the worksheet shows actual dollars or thousands. Name the agreed preparer and reviewer. These details prevent a technically correct total for the wrong company or date from reaching the closing statement.

Build one account map for the target and closing balance

Map the ledger accounts to the signed purchase definitions. Preserve subaccounts where a caption mixes different treatments. For example, a deposit account might hold a landlord deposit, a resident refund obligation or prepaid software. Their similar names do not establish the same ownership, restriction or accounting treatment.

Use the same map to rebuild the periods supporting the peg and the estimated closing schedule. If the parties change a definition during negotiation, show its effect on both sides. Merely removing an unfavorable account from the closing calculation can distort the comparison when that account remains inside the target.

The map is an original review tool, not a prescribed accounting policy. Have the accountants and counsel resolve conflicts between specific definitions, the sample schedule and any broader accounting language. Record the decision before a spreadsheet quietly chooses one interpretation.

Freeze a version that can be reproduced later

Retain the estimated schedule and its source files before updating the ledger. Use a dated copy that records the reporting cutoff, report settings and included entities. Keep formulas visible to authorized reviewers. A printout of the final total cannot explain which entries changed after closing.

IRS recordkeeping guidance explains the role of supporting documents behind business entries. It does not approve a purchase adjustment. The team still needs to trace each proposed number to its source. That may be an invoice, payroll record or reconciliation. (Source: IRS business recordkeeping, retrieved September 2026)

Use a change log with the original amount, proposed correction, reason, supporting record and current decision. Separate accepted changes from disputed proposals. If a correction affects several reports, identify the primary entry and its related effects. This allows a reviewer to reproduce the revised total without accidentally subtracting the same issue again.

Test service dates before using invoice dates

In care businesses, the date of an invoice may differ from the period when work occurred. A private-pay home-care bill can span closing. Residential charges may include advance service periods or later credits. A clinical provider may have unbilled activity that requires specialist assessment before it belongs in an acquired receivable balance.

Pick samples that test the boundary on both sides. Trace the service period, agreed cutoff, billing entry and subsequent correction. Establish whether the sample is included under the signed definition. An invoice created after closing may cover seller activity. An earlier invoice can also contain charges for later services.

Review the AR aging guide for the distinct questions of age, payer and collection support. A cutoff test determines which population is being measured. An allowance test examines its supported value. One unexplained percentage hides which test caused a difference. That makes later objections harder to resolve.

Reconcile an illustrative completion-account change

Assume a fictional nonmedical home-care asset sale includes net receivables, usable prepaids, trade payables and payroll accruals. Cash, debt, taxes, restricted client funds and their obligations are handled separately. The agreed peg is $90,000, with a dollar-for-dollar price adjustment. These terms and figures are invented solely for this exercise.

The estimated net receivables already include all agreed allowances except a newly supported $8,000 credit for pre-closing services. The final review also finds $6,000 of included payroll earned before closing but omitted from the estimate. Neither correction appears elsewhere in the purchase adjustments. All other accounts remain unchanged.

The estimate is $160,000 + $10,000 − $45,000 − $25,000 = $100,000. The final balance is $152,000 + $10,000 − $45,000 − $31,000 = $86,000. The price adjustment changes from positive $10,000 to negative $4,000. Relative to the estimate already used, the further adjustment is negative $14,000.

That last distinction matters. Deducting $14,000 and then deducting another $4,000 from the same estimated settlement would overstate the change. The final total adjustment is negative $4,000 against the original price basis. The incremental change from the estimated settlement is negative $14,000. Check which starting figure the funds-flow schedule uses.

Assign later receipts without reopening every balance

A later receipt needs an ownership decision even when the purchase adjustment is complete. Identify which invoices it settles and whether those receivables were acquired or retained. An account's current bank owner does not alone decide who is entitled to every deposit received through it.

In a separate fictional receipt exercise, the buyer receives $18,000. Supporting remittance detail allocates $11,000 to seller-retained receivables and $7,000 to acquired receivables. Assume no fees, credits or other claims, and an agreed duty to forward seller-owned collections. The buyer records $11,000 owed to the seller and $7,000 against the acquired balance.

The $7,000 is collection of an acquired asset already in the balance, not an automatic new increase in the working-capital price adjustment. Whether later collection evidence changes an allowance depends on the agreed method and review period. Keep that possible valuation question separate from allocating the receipt itself.

Handle credits, reversals and collections work

Agree who investigates a credit request, approves a correction and communicates with the customer or payer. A seller-retained balance may still need records in the operating system. The purchase terms should address lawful access and the cost of collection work. They should also cover items that remain open when support ends.

For Medicare-certified providers, agreement assignment and its conditions need separate review under section 489.18. An AR exclusion between buyer and seller does not itself resolve every provider or payer obligation. Do not treat the commercial account map as a determination of outside liability. (Source: 42 CFR 489.18, selected assignment conditions)

Read the overpayment definition when a proposed credit reflects a payer recovery issue. A claim repayment, ordinary price allowance and collection-service fee can have different treatment. Give each its own record identifier so the final settlement can be reviewed without merging unlike amounts.

Give the reviewer enough lawful evidence

A detailed financial review can begin with coded records and aggregated support, subject to the actual privacy assessment. If a reviewer needs more detail, state the question and the precise fields needed. A reconciliation should not depend on sending complete patient files to everyone negotiating price.

HHS describes limits on covered uses and disclosures under the minimum-necessary standard, with specified exceptions. It is a scope rule, not disclosure authority supplied by a spreadsheet or NDA. Have the responsible privacy professional assess the actual evidence path. (Source: HHS minimum necessary guidance, 2003 revision)

The seller document guide helps organize records before review. Preserve the unresolved question if lawful evidence is insufficient. A constrained review can be useful while still leaving a balance unverified. State that limit in the workpaper instead of describing a missing record as proof that the amount is zero.

Settle objections with the correct starting schedule

An objection should name the line, proposed amount, applicable definition and supporting evidence. State whether the disagreement concerns arithmetic, the facts, an accounting method or the contract's meaning. Those issues may need different reviewers under the actual dispute provisions.

Reconcile the final decision to the prior estimated payment and any separate settlements. Include the authorized payment instruction and proof that it occurred. A signed calculation and a completed transfer are different records. Keep both available for the parties' agreed reporting and later tax review.

For an applicable asset acquisition, a later change in consideration may require additional allocation reporting. IRS Form 8594 instructions address those changes; the CPA must assess the actual facts. Use the allocation guide for that follow-through. (Source: IRS Form 8594 instructions, November 2021)

Common mistakes

The most costly arithmetic error can be a change applied twice. Review both the target-to-final adjustment and the estimate-to-final change. Ask which one belongs in the settlement currently being prepared. Use clear labels rather than a single column called adjustment.

Other errors arise when the buyer counts every later receipt as its own cash. Changing allowance methods after seeing the result also distorts the review. A change to included accounts needs a fresh check of the target. Each weakens the comparison even if the formulas add correctly. Preserve the agreed basis and show proposed departures openly.

The LOI guide is the earlier place to identify these issues. Precise purchase definitions and a sample workpaper make the final review easier. They do not eliminate the need to check actual evidence or resolve an unexpected fact that emerges after closing.

Summary

Complete the purchase calculation from a fixed account map, a retained estimate and a documented change log. Trace the service cutoff and the value of included receivables separately. Reconcile the incremental settlement to what was already paid, then assign later receipts according to their actual ownership.

Bring those schedules and the remaining objections to a confidential discussion with Jason Taken. The broker can organize the commercial review; the accounting, tax, legal and privacy conclusions belong with the qualified advisers. The useful next step is a reproducible calculation whose limits are visible to both parties.