What entry is made when selling a fixed asset?

Defining the Entries When Selling a Fixed Asset

When a fixed asset or plant asset is sold, there are several things that must take place:

  1. The fixed asset's depreciation expense must be recorded up to the date of the sale
  2. The fixed asset's cost and the updated accumulated depreciation must be removed
  3. The cash received must be recorded
  4. The difference between the amounts removed in 2. and the cash received in 3. is recorded as a gain or loss on the sale of the fixed assets

Example of Entries When Selling a Plant Asset
Assume that on January 31, a company sells one of its machines that is no longer used for $3,000. Depreciation was last recorded on December 31. Also assume that the depreciation expense is $400 per month and the general ledger shows the machine's cost was $50,000 and its accumulated depreciation at December 31 was $39,600.

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.

Also on January 31, the company must debit Cash for $3,000 (the amount received); debit Accumulated Depreciation for $40,000 (the balance after the January 31 entry); debit Loss of Sale of Fixed Assets $7,000; and credit Machines for $50,000.

The $7,000 loss recorded on January 31 is the result of removing the machine's book value of $10,000 (cost of $50,000 minus its accumulated depreciation of $40,000), and replacing it with $3,000 of cash.

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.