Accounting for Sales of Capital Assets

There are two ways to account for the sale of a capital asset. In the end, it really does not matter which method you use, because in any case, you will have to do it a different way for tax purposes.

When you have several assets in a group, it can be difficult to determine the un-depreciated cost related only to a particular asset. For example, if you purchased a desk three years ago and posted it to the furniture and fixtures account, how do you know how much has been depreciated? It is possible to find the original cost from your capital asset sub-ledger and recalculate the depreciation. You would then remove those amounts from the books. Here is a more concrete example:

Desk:

Original cost                  $1,200

A/D                                   720

Sales proc                          500

 

The entry to record the sale would look like this:

DR Cash                              $500

DR   AID: furniture                720

CR Furniture                                       $1,200

CR Gain on sale                                         20

 

You can see that this entry accounts for the cash you got in the door, removes the value in the asset and A/D accounts related to the desk, and records the fact that you made $20 on the sale.

An easier although less accurate method is to simply record the $500 as a reduction to the asset account. What this means is that the gain on the sale won't be recognized until every asset has been sold out of the grouping, which may never happen. As long as the gains and losses are not large, this second method is adequate. The entry to record the sale would then be ­

DR Cash                               $500

CR Furniture                                          $500