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February 15, 2008

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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Comments

27 Responses to “What entry is made when selling a fixed asset?”

  1. Da Silva on February 15th, 2008 10:02 am

    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.

  2. bahtawi on February 16th, 2008 8:37 am

    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

  3. zara on February 20th, 2008 5:37 am

    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

  4. veena on February 20th, 2008 7:22 am

    I would like to know about defered expenses and how can record the P/L and Balance Sheet.Please explain the journal entries

  5. Alice on February 22nd, 2008 12:22 am

    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

  6. chloe on March 7th, 2008 6:57 am

    What is meant by provision for depreciation of a fixed asset such as furniture at 15% per annum? Thank you

  7. Samuel Isale on March 19th, 2008 1:52 am

    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.

  8. Wakuma Peter on March 19th, 2008 7:31 am

    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

  9. Melisa on March 22nd, 2008 2:02 am

    Thanks to AccountingCoach.com for the explanation!!

  10. Abigail on March 26th, 2008 7:22 am

    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.

  11. Baim on May 14th, 2008 7:03 pm

    I have a prperty valued at 1M and another valued at 250K. I also have a loan for 700K.
    When I sell the property valued at 250K, for 450K, and without ever receiving the money into my bank account, I transfer it to pay 450K of the 700K loan, what entries do I do.
    PS. I do not have any depriciation expenses recorded.
    I think, that I would CR assets (250), DR liability (450) and CR Revenuee (200) called gain on property sales.

    Please advise.

    Thank you very much in advance

  12. JWHL on May 15th, 2008 7:46 am

    I would do as follows:

    DR CR

    N/P(70K) - $450K

    Asset(250K) $250K

    Sell of Property-Gain $200K

  13. Anil on May 19th, 2008 3:37 am

    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

  14. San on June 30th, 2008 6:52 pm

    Please, I don’t understand how to compare the gain in cash between the loss when you remove a selling fixed, because according with US GAAP, you have 2 accounts , one is gain and the other one is for loss, and in this case you have gain (price of sell) vs loss (book values)

  15. Trever Nekatambe on July 17th, 2008 5:36 am

    thanks a lot to Accounting coach.com
    well to make things understandable for us,
    I think it will be wise enough to use practical illustrated
    examples.I think I,personally would understand much better.
    If you improve your system by giving us fully worked transactions and teach us how to practically enter transactions from books of prime entry to the financial statements. I think learning would be so
    adventurous.Well the truth is you are doing a great job
    THANKS A LOT….
    from TREXX…..

  16. Radil on July 21st, 2008 9:25 am

    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

  17. Shamili on July 25th, 2008 6:03 am

    Provision for depreciation means is an expense that is set aside over a period of time in the P&l amount.
    So depending upon the method of depreciation the provision is calculated.
    To my opinion it can be deducted from the Asset every month.

    Depreciation expense a/c dr
    To accumalated depreciation a/c

  18. Record the sale of a fixed asset on November 17th, 2008 10:13 pm

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  19. Tariq on January 13th, 2009 6:10 am

    what Depreciation Policy should Company Adopt?

    Plz reply me as soon as possible

  20. kanakaraj on April 27th, 2009 1:28 am

    HELLO MY DEAR,
    what is mean by Diluted earing share?
    what is the main difference between it and basic earning share?
    can you give me meaning of going concern and materiality?and example with it?

  21. K.K.Ray on May 5th, 2009 1:41 pm

    The shareholders EPS is diluted when entity issues convertible shares that can affect their future EPS. Basic EPS takes only Primary shares in issue. Dilute includes future potential convertibles. Going concern means that there are no significant doubts upon the going on of an entity as an effective operational entity. Materiality refers to significane of any transaction/item.

  22. Yassir on May 6th, 2009 4:33 am

    I would like know about accounting concept

    thanks

    Yassir Awad

  23. Ashish P. on May 7th, 2009 11:37 pm

    I completed graduate in the year 2007 and looking for correspondence MBA course from finance but My working profile is not mathching with related course, than after could do the MBA course?

  24. Moses on May 19th, 2009 9:29 am

    I need more explaination on capital rationing in relation to banking industry

  25. hans on May 20th, 2009 4:10 am

    what is the difference between debtors and credit sales

  26. Malou on June 11th, 2009 4:20 am

    I need more explanation on removing the Fixed asset from the list which is fully depreciated already.
    ex. laptop cost 40,000 acc. dep. 40,000 sold at 500
    is this the correct entry? dr cash 500, dr acc dep 500 cr fixed at cost 40,000 and cr gain on disposal 500

  27. Malou on June 11th, 2009 4:24 am

    hello, clarifications also..what if the asset to be disposed which is fully depreciated already were not sold. and the company decided to put it in junk. what is the accounting entry in removing the asset cost from the list? is it directly dr accum. dep and credit asset account?hope to hear a reply thank you and thanks for your website.

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