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What entry is made when selling a fixed asset?

To calculate this gain, we need to first determine the carrying amount of the asset which is zero since it has been fully depreciated. Gain on sale of asset refers to the increase in value that an asset has experienced since its purchase. In simpler terms, if you sell an asset for more than what you paid for it, then the profit you make from that sale is considered a gain. AssetAccountant, our best fixed asset management software, can compute depreciation using multiple methods and generate fixed asset disposal entries that can be imported to QuickBooks, Xero, and Sage Intacct.

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  • Sale of an asset may be done to retire an asset, funds generation, etc.
  • The purpose of fixed assets is to provide a stable foundation for a company’s ongoing business activities.
  • Reversing journal entries helps reverse or delete adjustments/entries from previous accounting periods that are no longer required.

When the assets are sold for more than their written down value, the profits arising from it will be treated as a gain for the company. But when the assets are sold for less than their written-down value, it will incur a loss for the company. Therefore, the sale of assets may produce either a profit or a loss for the company. The company makes a profit when it sells the fixed asset at the amount that is higher than its net book value.

Asset Disposal

This type of profit is usually recorded as other revenues in the income statement. Asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. A journal entry serves as the foundation for all financial reporting.

  • It’s important to note that gains or losses on sales of assets can have different tax implications depending on your jurisdiction and other factors such as holding periods.
  • Next, assume the contract provided Smith Corp. with an option to purchase the building on Jan. 1, 2026, for $12,000,000 and that the assets similar to the subject asset are not readily available in the market.
  • This can ultimately harm the reputation of a business if customers begin to notice a decline in product or service quality.
  • Please prepare the journal entry for gain on the sale of fixed assets.

If the remainder is positive, it is recorded as a gain on sale of assets, but if it is negative, it is recorded as a loss on sale of assets. All non-inventory assets must be removed from the balance sheet when sold off, exchanged, or retired from operations. Removing the assets that are sold from the balance sheet is an important bookkeeping task in order to keep the balance sheet accurate and useful. 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.

Journal entry for disposal of asset fully depreciated

Moreover, proper accounting of the disposal of an asset is critical to maintaining updated and clean accounting records. This journal entry is made to remove the $10,000 equipment that has been fully depreciated and is no longer useful for our business as of December 31. Likewise, there is no impact on the total assets of the balance sheet as the net book value of the fully depreciated equipment here is zero. When ABC Corporation sells this truck for $27,500, they will realize a gain on sale of asset.

By understanding how gains are calculated and recorded through journal entries, business owners can ensure they are maximizing profits while maintaining compliance with accounting regulations. The Fixed Assets branches of accounting account appears on the balance sheet and contains the original cost of all fixed assets. When an asset is disposed of, the Fixed Assets account must be credited for the original cost of the fixed asset.

Format of Journal Entry

Motors Inc. estimated the machinery’s useful life to be three years. At the end of the third year, the machinery is fully depreciated, and the asset must be disposed of. On January 31, the date the machine is sold, the company must record January’s depreciation. This entry debits $400 to Depreciation Expense and credits $400 to Accumulated Depreciation. 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’.


Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. For example, on December 31, we dispose of $10,000 of the office equipment that has been fully depreciated for it no longer has a use in our business.

Asset Disposal for No Proceeds at a Loss

Sometimes, we may need to dispose of the asset that is fully depreciated and is no longer useful to our business. In this case, we need to make the journal entry for disposal of the asset that is fully depreciated in order to remove both its cost and accumulated depreciation from the balance sheet. Gain on sale of fixed assets is the excess amount of sale proceed that the company receives more than the book value. This is the amount that the asset is listed on the balance sheet.

This is what the asset would be worth if it were sold on the open market. A sale of fixed assets is the transfer of a fixed asset from one entity to another. The transferee gains ownership of the asset and the transferor recognizes a gain or loss on the sale. The gain or loss is based on the difference between the book value of the asset and its fair market value. In this case, the loss on sale of fixed asset amounting to $375 here will be classified as other expenses in the income statement of ABC Ltd. Alternatively, the company makes a loss when it sells the fixed asset at the amount that is lower than its net book value.

In this case, the transaction would not still qualify as a successful sale and leaseback. The asset disposal results in a direct effect on the company’s financial statements. In all scenarios, this affects the balance sheet by removing a capital asset. Asset disposal is the removal of a long-term asset from the company’s accounting records. It is an important concept because capital assets are essential to successful business operations.

This can ultimately harm the reputation of a business if customers begin to notice a decline in product or service quality. This is where the question about claiming 1/2 of the 2018 depreciation comes from. Motors Inc. owns a machinery asset on its balance sheet worth $3,000.

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. Subtracting the carrying amount from the sale price of the asset will give us a positive or negative remainder.

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