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What is the entry to remove equipment that is sold before it is fully depreciated?

When equipment that is used in a business is sold for cash before it is fully depreciated, there will be two journal entries:

The first entry will be a debit to Depreciation Expense and a credit to Accumulated Depreciation to record the depreciation right up to the date of the sale (disposal).

The second entry will consist of the following:

  1. Credit the account Equipment to remove the equipment's cost.
  2. Debit Accumulated Depreciation to remove the equipment's up-to-date accumulated depreciation.
  3. Debit Cash for the amount received.
  4. 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.