How to calculate the gain or loss from an asset sale

ABC Company has a machine that originally cost $80,000 and against which $65,000 of accumulated depreciation has been recorded, resulting in a carrying value of $15,000. The net effect of this entry is to eliminate the machine from the accounting records, while recording a gain and the receipt of cash. Finally, any gain or loss from the disposal transaction is recognized in the journal entry. This is done by either debiting or crediting the gain or loss on disposal of assets account. If the sale results in a gain, as in the case where the machinery sold for $25,000 with a net book value of $20,000, a credit of $5,000 would be made to the gain on disposal account.

Disposal of Fixed Assets: How to Record the Journal Entry

Industries like agriculture and tourism are also affected by seasonality. Agricultural firms experience revenue spikes during harvest periods, while tourism companies see increased activity during peak travel seasons. In both cases, fixed assets such as machinery or resort properties may remain idle for much of the year, lowering the ratio during off-seasons. To account for these patterns, analysts often use rolling averages or compare year-over-year ratios for equivalent periods, ensuring a more accurate evaluation of asset efficiency.

Debit the Cash Account with the proceeds from the sale of the asset

Management and accounting personnel that oversee financial reporting should set expectations for capitalization policies, determining an asset’s useful life, and the appropriate method of depreciation. Operations teams must notify accounting of any material changes to the asset such as damages or planned improvements. When a fixed asset is no details and stages of accounts payable process longer used it must be removed from the balance sheet.

ACCOUNTING for Everyone

With Fixed Assets there are two costs that need to be transferred out at the end of each accounting period.
For businesses whose, assets’ useful life or residual values are defined by a regulatory body established by a law passed by the Parliament or the Central Government.
Transfers may occur during the lifecycle of a fixed asset for various reasons.
This exceptional transaction gives rise to the accounting recording of a decrease in the assets of the value of this fixed asset and the collection of the sale price, showing a gain or a loss.
The asset is now sold for $20,000, and the disposal costs are $5,000.
These assets are critical for daily operations but depreciate faster due to wear and tear or technological obsolescence.
This method depreciates assets twice as fast as the straight-line method.

The journal entry for sale of assets affects several balance sheet accounts and one income statement account for the gain or loss from the sale. In this article, we will discuss the sale of assets journal entry, but first, let’s look at what the sale of assets entails in accounting. Fixed assets are the property, plant, and equipment used by an organization in its operations and generation of revenue. Due to the complexity and importance of fixed asset accounting, it’s common for entities to invest in fixed asset software to save time and improve accuracy. Net fixed asset values, derived from the balance sheet, require careful scrutiny. Companies may use different accounting policies for asset valuation, such as historical cost or revaluation models under IFRS, which can affect comparability.

What is the financial impact?

Non-operating assets do not directly relate to operations but still contribute to revenue generation.
This ratio demonstrates a company’s ability to generate cash from operations to cover capital expenditures.
A perfectly depreciated machine can be considered obsolete and without little value in the production tool of the company.
In the above image, we can see an example of the gain or loss calculated on the disposal of a fixed asset.
For business accounting, the value of a fixed asset linearly decreases over time.
Conversely, if the asset has a remaining book value, the difference between this amount and the proceeds from the sale will determine whether the company recognizes a gain or a loss.

However, if the cash that Onyx Group of companies received was greater than the equipment’s book value, then the company would have recorded the difference as a credit to ‘Gain on Sale of Fixed Assets’. The next move would be to credit the related asset account by the original cost of the asset. Hence, if the machinery’s original cost was $50,000, the machinery account will be credited by $50,000. If the cash that the company received was greater than the asset’s book value, the company would record the difference as a credit to Gain on Sale of Fixed of Assets.

This method of depreciation is another accelerated depreciation method. It involves adding together each year in an asset’s useful life and then using that sum to calculate a percentage the flow of costs in job order costing representing the remaining useful life of the asset. The percentage is then multiplied by the asset’s depreciable base, cost less salvage value, to arrive at the depreciation to be recognized each period. Organizations dispose of a fixed asset at the end of its useful life or when appropriate, if, for example, the asset is no longer being used. The journal entry to record a disposal includes removing the book value of the fixed asset and its related accumulated amortization from the general ledger (and subledger). Operating assets are those used in the daily functioning of a business and its generation of revenue, such as cash or machinery and equipment.

Fixed asset sale journal entry

The adjusting entry for depreciation is normally made on 12/31 of each calendar year. If a fixed asset is disposed of during the year, an additional adjusting entry for depreciation on the date of disposal must be journalized to bring the accumulated depreciation balance and book value up to date. If the sales price of the asset is greater than the asset’s book value, the company records a gain but if the sales price of the asset is less than the asset’s book value, the company records a loss.

Capitalizing relatively insignificant purchases does not improve the readability of financial statements and may end up costing an entity more than the asset’s value. Assets must be removed from the financial records as part of the disposal process. To entirely erase every trace of an asset first from the balance sheet is required (known as derecognition). In the fiscal quarter in which the asset disposal occurs, a gain or loss may need to be recorded on the transaction. We’ll assume that the item sold is a fixed asset for the sake of this discussion.

Accounting books, annual accounts, compulsory chartered accountants… 👉 It reduces the cost of new assets, simplifies disposal, and immediately replaces the old asset. For assets that are not worth selling or donating, scrapping might be the only option. This typically involves dismantling the assets and disposing of them as scrap material. 👉 It’s environmentally friendly, reduces landfill waste, and can sometimes generate a small amount of revenue.

Loss From Cash Sale

The depreciation expense will record on income statement and it also decrease the fixed assets on balance sheet. When selling fixed assets, company has to remove both cost and accumulated depreciation from the balance sheet. If the company is able to sell the fixed asset for more than the book value, it will generate a gain on the sale. Fixed assets must be removed from the balance sheet when the asset is disposed of, such as sold, exchanged, or retired from operations. The journal entry to dispose of fixed assets affects several balance sheet accounts and one income statement account for the gain or loss from disposal.

Accruing tax liabilities in accounting involves recognizing and recording taxes that a company owes but has not yet paid. This is important for accurate financial reporting and compliance with… In contrast, utilities and heavy what is escrow and how does it work manufacturing sectors tend to have lower ratios due to their reliance on costly infrastructure and machinery. For instance, utility companies invest heavily in power plants and distribution networks, which are essential for operations but generate revenue at a slower pace.

The controller or CFO must ensure that the asset and any related accumulated depreciation are completely eliminated from the balance sheet through this journal entry. The goal is to accurately reflect the financial position post-write-off, maintaining compliance with accounting principles and ensuring transparency in the financial statements. When an asset reaches the end of its useful life and is fully depreciated, asset disposal occurs by means of a single entry in the general journal. The accumulated depreciation account is debited, and the relevant asset account is credited. When taking into account the sale of a fixed asset or plant asset, there are several things that must be taken into consideration. The depreciation expense of the fixed asset must be recorded up to the date of the sale and the fixed asset’s cost as well as the updated accumulated depreciation must be removed from the books.