How to record the journal entry

Fixed assets must be removed from the balance sheet when the asset is disposed of, such as sold, exchanged or withdrawn from operations. The journal

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Fixed assets must be removed from the balance sheet when the asset is disposed of, such as sold, exchanged or withdrawn from operations. The journal entry to sell fixed assets affects several balance sheet accounts and one income statement account for the gain or loss from disposal.

Accounts to Customize in an Disposal Journal Entry

There are four accounts that are affected when a fixed asset is written off available. When you write something from the books, accounts with normal debit balances are credited and accounts with normal credit balances are debited.

Fixed Asset Cost

The Fixed Asset Account appears on the balance sheet and contains the original purchase price of all fixed assets. When disposing of an asset, the fixed asset account must be credited to the original cost of the fixed asset.

Compounded depreciation

The Accumulated Depreciation Account contains all the life-to-date depreciation of an asset and appears on the balance sheet as a set-off against the Fixed Asset Account. When an asset is disposed of, all of the assets’ accumulated depreciation must be removed from the accumulated depreciation account with a debit entry.

Cash (or other asset received)

If there is any proceeds from the sale, you should record it accordingly. For cash purchases, the proceeds are debited to the Cash Account. For businesses that sell an asset by accepting a note from the buyer, the promised amount is debited to the Notes Debitable account.

Profit or loss on disposal of fixed assets

If the disposal of fixed assets results in a gain or loss, we credit Profit on Sale of Fixed Assets or debit Loss on Sale of Fixed Assets. The gain or loss is the difference between the selling price of the assets minus the book value of the fixed asset. Book value is the original cost of the asset less accumulated depreciation.

How to record the disposal of fixed assets with a journal entry

Recording the disposal of fixed assets in the general journal requires a series of steps to ensure that everything is properly accounted for before it is removed from the accounting records. Here are the steps you need to follow:

  1. Debit the accumulated depreciation account for the amount of depreciation claimed over the life of the asset.
  2. Credit the fixed asset account for the original cost of the asset.
  3. Debit the cash account for the proceeds from the sale.
  4. Recognize any gain (credit) or loss (debit) arising from the alienation. This amount can be determined by whatever is needed to make the journal entry balance.

Update the accumulated depreciation account up to the date of disposal by recording a partial annual depreciation expense. Debit Depreciation expense and credit Accumulated depreciation for the partial-year depreciation.

Examples of Fixed Asset Disposal Journal Entries

To illustrate the journal entries, let’s assume we have a fixed asset with an original cost of $ 50,000 and accumulated depreciation of $ 30,000 from the beginning of the year. The fixed asset has no recoverable amount and it has a useful life of five years. The company uses the straight-line method of depreciation.

Profit from cash sale

Let’s assume that the company sold the fixed asset on June 30 of the same year for $ 20,000. The journal entries will include the following:

The book value of our asset is $ 15,000 ($ 50,000 – $ 35,000). We sold it for $ 20,000, resulting in a profit of $ 5,000.

Loss From Cash Sale

Now that we know how to record the sale of assets at a profit, let’s assume that we sold the asset on June 30 for $ 12,000, resulting in a loss of $ 3,000. Our entries would be:

Asset disposal for no return on loss

Disposal of a fixed asset does not necessarily mean selling it. You can also stop using an asset by retiring it completely. Let’s assume that a fire on June 30th destroyed our fixed asset. Upon inspection of the asset, it was deemed unusable and totally destroyed. Our entries would be:

In this case, we recognize the entire book value of the asset as a loss of $ 15,000.

Disposal of a fully depreciated fixed asset for no return

Let us now assume we hold the fixed asset until the end of its useful life, at which time it is fully depreciated.

In our example, our fixed asset has a book value of zero. When it is retired for no return, there is no profit or loss.

Bottom Line

A fixed asset disposal journal entry depends on whether the sale was a sale, retirement or exchange. The common denominator for all journal entries will be the recognition of a profit or loss. If you have accounting software for small businesses like QuickBooks Online, you can do disposable journal entries in QuickBooks Online’s journal module.


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