What is the difference between gains and proceeds in terms of long-term assets?

Definition of Long-term Assets

Long-term assets, which are also referred to as noncurrent assets, are assets that generally are not expected to be converted to cash within one year of the balance sheet date.

Examples of Long-term Assets

Long-term assets include long-term investments in financial securities, property, plant, equipment, and intangible assets.

Definition of Proceeds from Long-term Assets

The money a company receives when selling one of its long-term assets is referred to as the proceeds.

Definition of Gain on Sale of Long-term Assets

When a company sells one of its long-term assets and the amount of the proceeds is greater than the book value or carrying value of the long-term asset at the time of the sale, the difference is a gain on the sale or disposal.  (If the amount received is less than the book value, the difference is a loss on the sale or disposal.)

To have the book value at the time of the sale, the asset's depreciation must be recorded up to the date of the sale.

Example of Proceeds and Gain on Sale of Long-term Asset

Assume that a company sells one of its company cars for $10,000. After recording the depreciation to the date of the sale, the car's book value is $6,000 (cost of $28,000 minus accumulated depreciation of $22,000).

The company will have proceeds of $10,000 and a gain on the sale of $4,000 ($10,000 minus the book value of $6,000).

On the statement of cash flows, the proceeds from the sale of a long-term asset is reported as a positive amount in the investing activities section. Since the gain on the sale is included in the net income, the gain is shown as a deduction from the net income reported in the operating activities section of the cash flow statement (under the indirect method).

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