When equipment that is used in a business is sold for cash before it is fully depreciated, there will be two journal entries:
The second entry will consist of the following:
- 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, it is a loss on the disposal. If a credit amount is needed, it is a gain on the disposal.
If the equipment is traded-in or exchanged for another asset, the second journal entry will be different from the one we presented.