What entry is made when selling a fixed asset?
When a fixed asset or plant asset is sold, the asset’s depreciation expense must be recorded up to the date of the sale. Next, 1) the asset’s cost and accumulated depreciation is removed, 2) the amount received is recorded, and 3) any difference is reported as a gain or loss.
Here’s an example. A company sells one of its machines on January 31 for $5,000. The last time depreciation was recorded was on December 31. Depreciation expense is $400 per month. The general ledger shows the machine’s cost was $50,000 and its accumulated depreciation at December 31 was $40,000.
On January 31 the company will debit Depreciation Expense for $400 and will credit Accumulated Depreciation for $400 in order to record the depreciation during January. In its next entry on January 31, the company will debit Cash for $5,000 (the amount received); debit Accumulated Depreciation for $40,400 (the balance at January 31); debit Loss of Disposal of Asset $4,600; and credit Machines for $50,000.
Let’s step back and review the disposal of the machine. As of January 31, the machine’s book value is $9,600 (cost of $50,000 minus its accumulated depreciation of $40,400). Because the asset is sold, the $9,600 of book value or carrying value is removed from the accounts. In its place, the company received and records the cash of $5,000. Since the company received $4,600 less than the amount it removed, it will report a loss of $4,600.
If the company had received more cash than the asset’s book value, it would report the difference as a credit to Gain on Disposal of Asset.
Learn more about Depreciation.
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10 Responses to “What entry is made when selling a fixed asset?”
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I would like to more understand about the difference between Financial Plan and Budget. Because I still confusing about financial plan and bugdet. I will more greatfull if you could explain in detail. thanks.
What does it mean by the provision for depreciation? Can it be under liability while working on monthly depreciation calculation? Please, explain to me and include entry how to record and year end closing.
i appreciate your help
Is the fixed cost treat as part of production in marginal costing? if yes how and why the profit in absorption costing treated as the part of sales and production?
plz explain this
thanks in anticipation
I would like to know about defered expenses and how can record the P/L and Balance Sheet.Please explain the journal entries
Plain is how some one can afford to produce according to his resorces, but budget is how some one can sale and consume his receipt
What is meant by provision for depreciation of a fixed asset such as furniture at 15% per annum? Thank you
How does one design Chart of accounts, and then I don’t understand your explanation above on treatment of the asset which has been sold, especially when you say debit Accumulated Depreciation for $40,400 (the balance at January 31); debit Loss of Disposal of Asset $4,600; and credit Machines for $50,000. Dr where? cash bk,ledger,income statement or where? thankyou for your support to Accountants.
About the entry of sale of an asset;
We have been given a scenario where the Machine (Asset) cost $50,000., and it has been depreciated at $ 400 per month. , total depreciation was 40,000 till Dec 31st.
So the following year (Jan still Dep. Was. $400).
Transaction Analysis
Cost – Acc. Dep
50,000-40,000 = 10,000 (Book value as at Dec 31)
Jan 31 (following yr)
10,000 – 400 = 9,600 (New Book value)
And it was sold for $ 5,000 (as you can see it is less than book value of $ 9,600.)
Hence a loss of $ 4,600 (9,600 – 5,000)
Entries made in Accounts
Dr Cash 5,000
Dr Acc.Dep. 40,400
Dr Loss of disp. of asset 4,600
Cr Machine (Asset) 50,000
Thanks to AccountingCoach.com for the explanation!!
can you please do it in a tabular form.it will be easier for some of us to understand.thank you.keep it up.thanks.