Goodwill is when a company purchases another company for more than the value of its assets—which is quite common—the difference is recorded as an asset named “goodwill.”

This is not a general term for the value of a brand, for example, but a very specific accounting term.

For example, if one business buys another business for $1 million then it needs to show the $1 million spent as an asset. If there are only $500 thousand in real assets, the accounting result should be $500,000 in real assets purchased and another $500,000 in “goodwill.”

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Bplans GlossaryBplans Glossary

At Bplans, it's our goal to make it easy for you to start and run your business. The Bplans glossary of common business terms will help you learn about key small business and entrepreneurship topics.