Entries To Record a Sale of Equipment
When equipment that is used in a business is disposed of (sold) for cash before it is fully depreciated, two steps must be taken:
- Record the depreciation expense right up to the date of the disposal
- Remove the equipment's cost and the up-to-date accumulated depreciation, record the cash received, and record the resulting gain or loss
The first step requires a journal entry that:
- Debits Depreciation Expense (for the depreciation up to the date of the disposal)
- Credits Accumulated Depreciation (for the depreciation up to the date of the disposal)
The second step requires another journal entry to:
- Credit the account Equipment (to remove the equipment's cost)
- Debit Accumulated Depreciation (to remove the equipment's up-to-date accumulated depreciation)
- Debit Cash for the amount received
- Get this journal entry to balance. If a debit amount is needed (because the cash received was less than the equipment's book value), record a debit to Loss on Disposal of Equipment. If a credit amount is needed (because the cash received was greater than the equipment's book value, record a credit to Gain on Disposal of Equipment
(If the equipment is traded-in or exchanged for another asset, the second step will be different.)
